A New Lens with Balaji Reddie (Part 8)

What if your cheapest supplier is secretly your riskiest? Balaji Reddie unpacks Deming's Points 4, 5, and 6 with Andrew Stotz by exploring Deming's thinking on suppliers, continual improvement, and training. Why do strong relationships matter more than short-term savings? Why should problems be welcomed? Do people perform differently when they understand the purpose behind their work? Balaji uses stories to offer a practical look at what these three points can teach leaders today. TRANSCRIPT 0:00:02.0 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 more broadly. Well, we've had some great conversations so far on various points of Dr. Deming's 14 points. I think we're gonna try to get four or five, four, five, six. Let's see how it goes. So, Balaji, take it away.   0:00:32.5 Balaji Reddie: All right. So, good morning, Andrew. So I think the last couple of times we were together, we've spoken about point number one. I think the first thing I did say is that this is an entire system, so we can't isolate them. But he gave it some sequence and he gave it some structure. So... Is there disturbances that getting recorded?   0:00:54.3 Andrew Stotz: No. No.   0:00:55.0 Balaji Reddie: No? Okay. Right. So point number one, of course, was very much in sync with how he defined a system, where he said that every system must have an aim. Without an aim, there is no system. And when you read the commentary behind that, you see that it's not just aim what he meant was also purpose, the reason why a system exists. And so when we started seeing how he applied this to the running of an organization, that's why the first thing that crossed his mind was purpose. We, of course, discussed that in complete detail, what he meant by that. I think we also discussed about the actual text that he wrote where he said for quality and productivity and things like that. The second one, of course, how he changed the wording of point two, which was adopt the new philosophy. So when he first wrote it, it was philosophy of quality that comes first more than anything else. But when he professed Profound Knowledge, the wording changed to the new philosophy of win-win, right? Cooperate.   0:01:54.4 Balaji Reddie: And that's what we discussed last time, that cooperation in the broadest sense of the term with each other inside the company, with your competitors, with your suppliers, with your customers. And he says, "Teach and practice this." Those were the words. And the third one, of course, cease dependence on mass inspection. And it was a context in which he wrote it, but of course, he elaborated on that. You should understand why we use inspection. It is to keep us updated on what is happening in the process, not so much to sort bad from good. And that was basically, in fact, the wordings of the new point he wrote was understand the purpose of the system of inspection. He said there will always be inspection, but relying on that is not right. Using that to understand the process, that's the way to do it. So that's exactly what we spoke last time. Now we're taking it from there. Now talking about point number four, where... I'll just pull up the wordings for my sake so that I don't make a mistake in reading out what he actually said. Right? So the original wordings and then what it changed to later on, right? When he started professing. Now, so here's point number four, which goes like this. He says, "End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost. Move toward a single supplier for any one item in a long-term relationship of loyalty and trust." And this did not change in 1986 or 1990.   0:03:39.1 Balaji Reddie: Now, he writes there in the commentary, which is taken from his text, "The aim in purchase of tools and other equipment should be to minimize the net cost per hour of life. Price has no meaning without a measure of quality being purchased. Without adequate measure of quality, business drifts to the lowest bidder, low quality and high cost being the inevitable result. Estimate the total cost of use of materials and services, the first cost, purchase price, plus the predicted cost of problems in use of them and their effect on the quality of final product. As the relationship between supplier and customer grows tighter and tighter, renewal of a contract year after year may appear to be a formality. This even tighter and tighter relationship will, under good management of producer and customer, ensure better and better quality and lower and lower costs as the years go by. A long-term relationship with a single supplier may be a wise decision if customer and supplier play their parts for optimization of the system. However, a sudden jump to a single supplier is inadvisable. There are risks. Go slow. It is not a relationship to enter into lightly. An overriding criterion is the supplier's burning desire to work with the customer on a long-term relationship backed up by a demonstrable store of specialized knowledge with management that is trying to adopt the new philosophy."   0:05:01.8 Balaji Reddie: And beautifully written. So the new wordings would now be, "Work towards having an arms-around relationship with your suppliers. Invest in them through education and training so that they can contribute effectively towards the organization. And when purchasing, do not focus on price alone without a measure of quality, and reduce variation by practicing cooperation with your suppliers." Now, coming to this, not many people are aware of what he spoke in Japan to the organizations there, but one of the major points he did say was to work very closely with their suppliers, right? And this text... The funny thing is, you know, about his works in Japan that he never gave any handouts or material, unlike Dr. Juran, who gave a lot of notes before he landed there. Right? Dr. Deming just handed out certain standards and just some pamphlets, I think Z1, Z2, and Z3, the standard copies. But what he spoke there was recorded by them. And the notebook, the book that came out, Elementary Principles of the Statistical Control of Quality, were essentially transcripts of what he spoke there. Right? It's later on when they showed him that they had made a book that he assisted. They expected him to get a little, I can't use a very strong word, upset, but that he would chide them for having done something without his knowledge. But instead, he was very happy, apparently, and added on to it and gave them the second edition and asked them to add an extra chapter and things like that. So when he went through those notes, obviously it was their translation of English to Japanese and then Japanese to English and things like that. But strong messages came out, and one of them was to work very closely with their suppliers and treat them as an extension of themselves, right? Extension of the company itself.   0:07:09.7 Balaji Reddie: Now, the thing about the lectures that he gave there, it's very interesting, that the arrow diagram, if you remember the famous arrow diagram which he drew there. If you see, it appears on Out of the Crisis in the new edition, page three, but the original edition, page four. But that arrow diagram in his mimeographed book, Quality, Productivity, and Competitive Position, comes on page number 103. And if you see the Elementary Principles of the Statistical Control of Quality, the arrow diagram is just directed towards the consumer. That does not have consumer research, right? And I think even he was... When he wrote... When the final edition of The World of W. Edwards Deming came out, the Lecture to Top Management, actually that was a lecture which he gave to the statisticians and engineers. To top management, there were two instances. One was July 1950 where he spoke to 20 people... Or 21 out of the 40 people who were invited. And then there was another one in August 1950. And August 1950, that took place at Hotel Diama, and that's where he added consumer research and completed the diagram. And that's the one he reproduced ever since in all his papers. But funnily, in The World of W. Edwards Deming, they've reproduced the first arrow diagram that he came up with, which did not have consumer research. It just shows the arrow pointing towards. But in both there, there was the presence of suppliers. Right? And he said that now... We used to have this group on the internet. It was called DEN, Deming Electronic Network, the D-E-N, the DEN, and we used to call ourselves the DENizens. And there was a gentleman, Jim Clauson, who used to... Who was a moderator and he had everything. It's unfortunate, I don't know where he is now. Not kept in touch with him. The last, I think, I interacted was many years ago.   0:09:16.7 Balaji Reddie: But all that... That's a treasure house of conversations, emails, which he has. Unfortunately, some cybersquatter hacked into the server and was asking for a ransom of $28,000 or something like that. And this guy didn't... He said, "Obviously, I can't pay that kind of money." So I don't know whether he's managed to retrieve all of that, because that's a treasure house. We used to have a lot of chats on that, and I interacted a lot with two very, very famous people who also worked very closely with Dr. Deming. One, of course, the great Myron Tribus, and the other one was John Dowd. And John Dowd... We had this chat and we said there is a difference between July 1950 and August 1950. And he took it on himself to find out what exactly was spoken in both these. Because July 1950, yes, Dr. Deming himself gave some notes and said, "This is what it needs to be." But August 1950, the people sitting there. So there were 80 people in that room. And I think he got in touch with some of them and he tried to reproduce to the extent possible what exactly was spoken there. I did try to add to it. I sent him some of the notes which my father had when he went to Japan in 1964, which is, of course, almost 10, 15 years later. But I saw some notes there which were typewritten, of course, mimeographed, which had some semblance. So I sent him, I said, "We need to add this in." But when he sort of released that document, he didn't really put that in. I don't know why. We had a discussion, but he didn't put that in. But there is where you get to see he talks about cooperation. He talks about working closely. And the words he used were the famous saying, "The strength of a chain lies in its weakest link." Right. And he paraphrased that apparently and said, "You're only as strong as your weakest supplier."   [chuckle]   0:11:31.2 Balaji Reddie: So the suppliers have to be as strong as you are. And I'm going ahead of myself here, but I believe that's the reason why people call it a supply chain. And he kind of sowed the seeds. He never said so in as many words, but definitely he said, "You have to work closely." And he left it to them how they wanted to do it, right? Typical Deming, just give them the idea and you come up with a method. And what they did, typical Japanese way of working, they all worked together. And I think they saw that there was a lot of commonality in the way they were interpreting what Dr. Deming said. And so in 1957, they came out with a document of 10 principles of working closely with your supplier. This has been reproduced by Ishikawa, the famous Ishikawa diagram inventor, in his book Introduction to Quality Control, I think that's the book. Because the next one that came out was Guide to Quality Control. So Introduction to Quality Control has this document, the 1957 document, 10 principles of vendee-vendor relationship, which then got updated, if I'm not wrong, around the year 2000. Because '97 is when the JUSE, that is Japanese Union of Scientists and Engineers, finally decided to adopt the term TQM. They used to use the term TQC up until then, Total Quality Control.   0:13:08.7 Balaji Reddie: And when they finally adopted TQM, that's when they realized they had to revisit many of the documents. And one of them they revisited and updated was this document. And it's a fantastic document. If you get to lay your hands on it, please do read it. I can read out some of the text. I'll just pull it up for my reference. So you'll find out what he insisted on, how you work with your suppliers, right? So let's just... Yeah, let me just get this going. Okay, so here we go. It would be here. Okay. So working closely with your suppliers and the vendee-vendor relationship. Here we go. Okay, so we say here, here it begins. First, the purpose of the entire document. He says, "Both purchaser and supplier should sincerely practice the following 10 principles while fostering a spirit of mutual trust, cooperation, and tolerance, and inculcate a sense of social responsibility." Right? So this is the purpose. The purpose of the document has not changed over the years. So those three words; trust, cooperation, and tolerance. Right? The way it should be practiced. Now, how it is practiced today, I think trust in today's world is we lie a little less to each other. Right? Cooperation would be you scratch my back, I'll scratch yours. And tolerance, I don't even want to go there. I'll create a big controversy. There'll be something else that might get edited out from here. But that's precisely what this is. And social responsibility. I mean, this is 1957, right?   0:14:57.5 Andrew Stotz: Yeah.   0:14:58.2 Balaji Reddie: And they were talking about social responsibility, which has become a fashion today, CSR, et cetera, et cetera. People could argue it's become more structured. Sure, sure. But the seeds were sown then, right? And now I'll read out the wordings of the first point where he says that purchaser... They say, "Purchaser and supplier are responsible for understanding each other's quality control systems and working together to implement quality control." But they updated it by saying, "Purchaser and supplier are jointly responsible for understanding each other's organizational systems and working together to create value for the end user." So understanding each other's companies is important, and each other's systems, the way you operate. And of course, main thing is you work together, which works in sync with Dr. Deming's interdependence in a system where you are independent and mutually dependent simultaneously. So that's point one. Point two, of course, is much more elaborate, saying that... This is where interdependence comes out... "Should preserve their individual autonomy while respecting each other's independence." So that's exactly what I just mentioned. That incidentally happens to be point two.   0:16:10.1 Balaji Reddie: Point three in this is, "Purchaser and supplier must be on the same wavelength. Speak the same language. In other words, talking about operational definitions, there should be no ambiguity in understanding and realizing requirements. Should clearly understand what each one is saying." So the use of operational definitions came in this point number three. Point number four talks about having contracts. But they said the contracts should cover the following; quality, quantity, price, delivery deadlines, and payment conditions. And in the new edition, they say there must be a quest for continual improvement. So putting that as point four. Point five is "go beyond merely conforming to specifications. This could involve studying the end use of component or activity and providing relevant evidence wherever possible." So this is, I think, the use of testing labs, et cetera, just as to give confidence to each other that we're on the right track. And also go beyond just trying to meet specifications. I think that comes in line with one of Dr. Deming's obstacles, the supposition that you can only meet specifications. And then he talks about evaluation. I mean, they talk about evaluation methods, but they say that "evaluation is not for judgment but for improvement." Yes, you need to be... Again, that famous statement that you need to be aware of what is happening and nothing more than that. And if you are evaluating the supplier, also help them attain the next level of performance. It's not us versus them; it's us and them. Right?   0:17:56.8 Balaji Reddie: So that's point number six. And then point number seven is very interesting. What if there are disputes, right? There should be some procedure for amicable settlement of disputes. And the word there is empathetic approach should be there towards settling disputes. And then of course, point number eight is improvement, innovation, invention happen only when you work together. So there should be a continual exchange of knowledge, training, information. And point number nine says integrate your processes as much as possible. And finally, the tenth point says do not lose focus on the consumer interest. So you can see here, Andrew, how they interpreted what Dr. Deming had to say. These were 10 principles they wrote way back in 1957, which are as relevant as they are even today. And working towards a single source, yeah, definitely Deming gave us that warning, you can't do it overnight and you can't do it immediately. So how do we approach that? All right.   0:19:04.3 Balaji Reddie: So what we decided to do, we said here in my company when we did this, I said that we need to first do a criticality analysis, right? Which are those items which are critical to the running of our business? Let's identify them first and then we begin with applying these principles, working closely with those items first, right? And once that is done and we learn how to do that, then we can expand our dragnet and include just about everyone. Eventually we want to go there, right? We want to go where we can work that way with just about everyone. But we begin with the critical items first because that's the way. These are critical to the running of your business, like I said, right? But because then you would just be... There could be something which is... I mean, you can't... Let's say I'm just giving an example, automotive industry and nuts and bolts and things like that. I'll start having a long-term relationship with the guy providing me with a nut and bolt, which could be available anywhere, right? There could be so many providers, suppliers of that item.   0:20:13.0 Balaji Reddie: So instead you identify those critical ones, start having long-term relationships with those, and for different reasons, they could be critical for different reasons, could be functionality, could be price, cost, scarcity, right? So all these things. So there is a method of applying Deming's point number four and it's very scientific and he meant it in a very, very right way. So he said invest in them through education and training, not just money, but education and training, making them as competent as you are because, well, that's the link, the supply... The strength of the chain. So I believe that this is a beautiful point. And once again, purpose. If you apply the Profound Knowledge to point number four, the aim and purpose should be explained. Variation. There should be some evidence. And Deming beautifully explains this in, I think, in Quality, Productivity, and Competitive Position. There's a wonderful example. He's given two suppliers, one providing statistical evidence of quality and one also meeting specifications but not providing any evidence, and how a company can work with each one of those. I don't think he's shown that in Out of the Crisis, but I think he's spoken once or twice about it during his seminars about working closely with the suppliers. And this was a new thing in America at that time, in the Western world, because the way they operated was pit one supplier against another, right?   0:21:47.7 Andrew Stotz: Yeah.   0:21:48.5 Balaji Reddie: Whereas he was trying to get them to work towards a single source.   0:21:54.9 Andrew Stotz: I think it's an uncommon thing today.   0:21:59.9 Balaji Reddie: Yes.   0:22:00.9 Andrew Stotz: I would say most supplier relationships are adversarial.   0:22:06.4 Balaji Reddie: Yes.   0:22:07.9 Andrew Stotz: And they're playing them off against each other and they're therefore bringing unnecessary variation and unnecessary distractions from delivering improved quality.   0:22:19.7 Balaji Reddie: Yeah. I remember the time when I was working on this in my company and I of course wanted to do this the right way, and there was one of my customers who taught me this. He called me up one fine day and said that, "Look, Mr. Reddie, we have... My purchase department will not be calling..." And this is the vice president of purchase talking to me, saying that, "My purchase officers will no longer be calling you from now on to place orders. We have outsourced this to a third-party logistical provider and they would be getting in touch with you." And I had never heard of this term "third-party logistical provider" right? I didn't know what it meant. And I just nodded in a courteous way on the telephone, so I just said, "Yes, sir." And he said, "Whatever cooperation you extended to me, please extend it to them. It's as though they are working with us, just in a very different form." "Fair enough," I said. And sure enough, that gentleman called up after 10 minutes and said, "I'm calling from this company. We are their third-party logistical provider and so I'd like to meet you in that respect." I said, "Sure." And so I went to meet this gentleman at the office. And he said something very funny when he spoke to me. He said, "You are the first supplier I'm talking to." Now, that bit I was not very surprised because my company's name began with an A, right? So if it's alphabetical order, we're right on top. No, not only that, since my boss was very superstitious, two A's, so AA. So we're always on top.   0:24:05.0 Andrew Stotz: Thought it was gonna be A1, but okay, two A's, that's good.   0:24:08.0 Balaji Reddie: Two A's. So when he said, "You're the first supplier," I just chuckled to myself, "Okay, I know." And then he said, "But you're my critical supplier." I said, "Wait a minute. Is he just trying to entice me to come and meet him almost immediately?" Because, "I need to talk to you immediately," he said. So anyway, I went to meet him, and after we shook hands, everything, then I said, "Right, I just want to clarify with you that you said I'm the first supplier you're calling up, and I'm quite sure why that is." And so he laughed. He said, "Okay, guilty as charged." But I said, "You said something else. You said that I'm a critical supplier. How do you say that?" I said, "If you apply the traditional analysis that is normally done inside companies, we call it ABC analysis, right? And so my component, which I supply to you, happens to be in the C category, right? So how am I critical? Is it C for critical?" And he laughed. He said, "Oh." He said, "No, if that's what you think it is." He said, "Your component may be in the C category when it comes to the price or whatever, but if your component fails to do what it's supposed to do, my entire compressor will explode, and that costs millions of rupees." And he said, "Not only that, okay, I may be able to replace the compressor or whatever, but what if it takes a life? I can't replace a life. And so your component is critical." And the light dawned on me. I said, "Damn, is this what Deming meant?" The single source, where you find something... That's where it inspired me to do the criticality analysis before you jump into anything. But let me tell you something funny. After I was enlightened, and this is happening in front of him, the light was shining on, the aha moment, and I came back to my own factory and I said, "Why don't I do this for my own product?" What I learned just now. So I did a quick analysis and I found there was one component which if that failed to perform, my entire... My product would fail to perform. Now, here's what I discovered that day. One, typically it was a C-class item, and second, I had two suppliers for it. Should I tell you the third thing, which is a shocker?   0:26:40.3 Andrew Stotz: Yeah.   0:26:40.9 Balaji Reddie: We weren't even carrying out incoming inspection on that item. That means my whole company was running on God's will, if you know what I mean.   [laughter]   0:26:50.4 Andrew Stotz: I do.   0:26:53.9 Balaji Reddie: So you can imagine it was a defining moment for me that I had to do this analysis. And that took me what, five, six months sitting down with all the people in my company because I had to do a... It was a comprehensive analysis we did. And then we identified the critical items, and then I said, "Now I'll go talk to them and see if we can start building something deep." And yeah, it was tough, but that's the way it is. So this point number four, Deming meant in the true sense of the word. And I think in today's world, it's even more relevant because today's companies are networks which are globally dispersed.   0:27:40.3 Andrew Stotz: Yeah.   0:27:40.7 Balaji Reddie: Right? And we discussed this in point number one. There has to be something that binds them together and that's the statement of purpose. But now building that entire... And of course, investing in them, education, training, et cetera, it's, I think, an integral part of today. In fact, HR, the human resource department in every company today, has a new job. They not only should plan for training, development of their own employees, but sit down with the purchase department, sit down with the R&D, sit down with the production and find out which are those suppliers who need this. Right? Because if the component is critical, then are they aware of the methods of... Are they... Do they have any idea? Profound Knowledge. If I can go ahead and talk the Deming language, and get them to adopt the new philosophy, blah, blah, blah. But that's what they need to do. So HR has a new job.   0:28:38.2 Andrew Stotz: There's a lot of training involved in that.   0:28:40.1 Balaji Reddie: Oh, yes.   0:28:40.7 Andrew Stotz: I don't think there's much I can add to that. I think your discussion of the price tag alone, it's something... The funny thing is that Deming understood finance.   0:28:52.1 Balaji Reddie: Yes. Yes.   0:28:54.1 Andrew Stotz: He understood the total costs. And I think many people totally ignore that.   0:28:59.5 Balaji Reddie: They do. Yes.   0:29:00.2 Andrew Stotz: So I appreciate that. Yeah.   0:29:01.6 Balaji Reddie: Yeah. Purchase price versus total cost.   0:29:03.1 Andrew Stotz: Yep.   0:29:04.6 Balaji Reddie: So the purchase price, I think he mentioned that. He writes that. I just verbatim read out what he wrote, that you can get the lowest purchase price, but it should include the operating cost. I think Toyota has added something more to that. They call it as the cost of materials that are required... Especially when they're talking about the automotive industry. Cost of material required to outlive the life of the car or the automotive. And the way I interpret is, when you use the word life, we look at it two ways: market life and useful life. That means as long as your product is in the market, you are responsible, and as long as the product is in the hands of the customer, you are responsible. So that, I believe, is the way you look at running businesses today. It's no longer limited to one transaction, getting out the product and leaving it in the hands of the consumer, but it's much more than that. It's what happens throughout the life. Right?   0:30:09.8 Andrew Stotz: So should we go to step five?   0:30:12.1 Balaji Reddie: Sure. So let's get to point number five. So point number five he says is, well, continual improvement to be practiced, et cetera, right? So let me just read out the point number five now. So he says here, "Improve constantly and forever the system of production and service to improve quality and productivity and thus constantly decrease costs." So yes, he said there should be teamwork in design and continual improvement. And the slight change in 1990, "Improve constantly and forever the system of production, service, planning, or any activity. This would improve quality and productivity and thus constantly decrease costs." So he just made it more elaborate. So he says here, "because putting out fires is not improvement, neither is discovery and removal of a special cause. This only puts the process back to where it should have been in the first place." He credits this thinking to Dr. Juran. He says, this is what I learned from his talk which he gave in the 1940s about the, again, the limitation of specifications only. So he says that now the way we look at it, because the way I saw him explain these points, he says, "Understand and analyze your processes and systems completely so that you focus on reducing the effects of variation on the system." And he says, "Keep improving and innovating continually. Systemize this philosophy." And this sentence really hit me, "Find out problems before they find you out." So your job is to keep looking for problems. And he said that you should encourage the people in the company to come and report problems to you. A problem is something that you did not anticipate in a process. Right?   0:32:28.9 Balaji Reddie: So when someone comes to you with a problem, you should be happy because you didn't anticipate that. It is something that you were not prepared for. And often he said managers don't understand people's problems. Forget their, they don't understand their own problems. And so he said we need to get that happening. And he said that... But of course he warned that stamping out those fires only puts back the process to where it should have been in the first place. We need to go beyond that, right? So any kind of suggestion... So this is all linked to the points that come even after this, but point five was to keep your eyes and ears open and welcome any kind of deviations being reported. Because people often tend to kill the messenger. I mean, the poor person who's come to you with a problem. Very often I've heard this scene happen. They say, "That is not the problem. You are the problem."   [laughter]   0:33:30.2 Balaji Reddie: And so the poor guy just stops reporting everything.   0:33:32.9 Andrew Stotz: Yeah.   0:33:33.6 Balaji Reddie: So I think that should be taken into account, that we need to encourage them, because this is a lot to do with the points which come later on which we'll be discussing. But this point number five, and he says systemize this. Make this a part of your day-to-day life as a manager, that people coming to you with problems are not doing that because they like to, because they have to, right? And you need to know that. So that is point number five. Now getting to point number six, because point number five was pretty straightforward. I can just read out the text. I think I did read it out, but yeah... Teamwork in design, yes. I think the main thing about special cause... Oh yeah, there's another paragraph here. He says, "Improvement nearly always means reduction of variation, that is, narrower control limits, though it may also require movement of the average, the center line, to a higher or lower level. Improvement of a stable system requires fundamental change in the process. This fundamental change required may be extremely simple. On the other hand, the fundamental change required may be complex or even costly. It may require authorization and effort higher up. If the system is not worth the cost of improvement, it might be wise to direct effort to other systems more in need of attention. We should study with the aid of a loss function the economics of shrinkage of variation." So for people complaining that Deming never gave us a method, haha, here he did. He gave us a method and he said use the loss function and decide whether it's economical to go for the improvement or not right away. You could go for it over the long term. You don't ignore it. There are the problems of today and problems of tomorrow, as he said. So there could be some which you can tackle later on, but the ones which you need right away, you need to attack them right away.   0:35:28.3 Andrew Stotz: Right.   0:35:28.4 Balaji Reddie: So that's precisely how I believe he wanted us to do this. So that was point number five. Now we get to point number six. Now point number six is training on the job. And this is an amazing point he says... Because the wording has not changed from the 1986 version to the 1990 version, but the text. So he says, "Training must be totally reconstructed. Management needs training to learn about the company all the way from incoming material to the customer. Management must understand and act on the problems that rob the production worker of the possibility of carrying out his work with satisfaction. A big problem in training arises from a flexible standard of what is acceptable work and what is not." This standard is too often dependent on the difficulty in meeting numerical quotas. So I told you this is all related to things that come further down. And then he says, "Your job description must do more than prescribe motions, do this, do that, this way, that way. It must tell what the work will be used for, how this work contributes to the aim of the system. Anyone on a job needs to understand in detail the work and the needs of the people that come after him in the flow diagram." So he refers to his flow diagram again of the work of the organization. "The effect of training will not be realized for months or even years in the future. Moreover, the effect cannot be measured. Then why does a company spend money for training? Because the management believe that there will be in the future benefits that far outweigh the cost. In other words, the management are guided by theory and not by figures. They are wise." Right?   0:37:17.6 Balaji Reddie: So it says here, "training must not only focus on how the job is done, but also the purpose of the job being carried out. Everyone must know how they are contributing to the entire system. Training must also aim at creating learners. This forms the basis of continual improvement and motivates intrinsically." So intrinsic motivation. So training is not just how, but why. We are coming back to Profound Knowledge. Why? Purpose, aim. Also understand that the impact of training will not be the same on everyone. So we bring in variation. Each one is different from the other. People learn differently. And of course, when you're looking at the entire theory, when you teach them, you teach them how to learn the theory. Right? So applying this, like I said, to point number six, training, and of course there's the other point number 13, which we'll be dealing with later, but these are linked. Right? Although he says you can't measure the effect of training, I think training is pretty company-specific, industry-specific, and very specific. So I believe you can measure in some ways the effect of training. Maybe development is a little tough to measure, but training, yes, because you can say that before training the person made so many mistakes, but after training the number of mistakes have come down. Before training the outcome was this, and after training the outcome is this. So I think you can do it in some way, although I think he meant it in a very broader sense that keep training and developing people and motivate them and things like that.   0:38:53.6 Balaji Reddie: But the main thing I think would be not just how, but why. I think I once mentioned this example, I don't know whether I remember taking that example here about the why when the person was trained. I mean, take the case here, of course, a hypothetical case based on something that I saw in a company, where the production manager approaches the HR person and says, "Some people are gonna be retiring, blah blah blah, I need some pair of hands at the desk for data entry into the system." And so the HR person says, "Right, I'll put an ad, I'll put an advertisement in the industrial circles, in the journals and see what happens." So an ad is put in the papers, et cetera. Wanted, data entry operator with the typical qualifications, SQL, blah blah blah blah, RDBMS. And then people apply and then they go through the typical process and they select a candidate. And I'm talking in an Indian scenario, so paying them something like say 15,000 rupees a month and say, "This is your job, data entry." And so this kid comes in and very, very sincerely starts entering data regularly every single day, without fail, does his work.   0:40:17.3 Balaji Reddie: Now after three, say five or six months on the job, suddenly one fine day he's sitting and doing his job at his desk and there's this person coming out in a three-piece suit with a tie, and you know, and then he realizes, "Oh, this is a big guy in the company." So when he approaches him, he greets him, "Good morning." And he said, "Yes, good morning. And are you a new employee here?" He said, "Yes." "And what do you do here?" He says, "I do data entry." "Oh, excellent, very good. Keep up the good work." And he walks away. Now around two weeks later, this kid gets a job offer in another company, right? Similar data entry, and salary is instead of 15,000, he's getting 25,000, which is a good amount of money. So he's gone, right? Why not? He's doing the same job. But now let's get to the place which is, let's say, Deming oriented and teaching the people not just what, but how, or why. And here's what happens. Guy is sitting at the desk, same scenario, okay, doing his work. And that three-piece suit gentleman comes in and says, "Yes, so are you a new employee here?" "Yes." "When did you join?" "Six months ago." "All right. And what do you do here?" "I do data entry." "But do you know what is done with the data that you enter?" And he says, "Quite frankly, I don't." "Come with me." And he takes him to the production planning and control department, and he sees there that there are people there using his data to make graphs and calculate what is needed and projections. And this kid is fascinated. He said, "I know how to do this, but I didn't know that I was so important."   0:41:58.3 Balaji Reddie: So he starts getting a little more enthusiastic about his work and not only just entering data, once in a while he goes to the PPP department, say a little before lunch, and just checking out what are they doing. And one fine day he decides to draw the graph which he saw there, because he says, "I can draw this graph. I saw that guy creating this." So he sends the graph, and that day those guys come to him and say, "Hey, you did a great job today. You sent us the graph and you saved us so much of time. So why don't you shift your desk and join us and be a part of us?" And so he goes there. Now, two weeks later, he gets a job offer from another company. Do you think he'll leave? [laughter] He's gonna think ten times because he suddenly realized how important he is, and he's growing and he's learning, and he says, "If I join another company, I'll be just another data entry operator, but here I have understood my purpose."   0:43:04.8 Andrew Stotz: Yeah, that's making an impact, being involved. Dr. Deming talked about this idea that we can't even really do a job if we don't know what it's for.   0:43:14.9 Balaji Reddie: Right.   0:43:15.0 Andrew Stotz: So there's that plus this whole psychology of intrinsic motivation. People want to contribute and feel like they're part of something. And when you really see that whole process, it definitely lights up eyeballs for everybody.   0:43:27.9 Balaji Reddie: Yeah. You remember the famous thing, "Clean the table"? [laughter]   0:43:30.7 Andrew Stotz: Yes, exactly. I watched this video of that with Robert Wright on YouTube over and over again where he would say, "I can't clean this table if you don't tell me what it's used for."   0:43:44.9 Balaji Reddie: That's right.   0:43:45.2 Andrew Stotz: Yeah.   0:43:46.4 Balaji Reddie: So I would say that's point number six, yeah.   0:43:49.0 Andrew Stotz: I think that that's a great wrap-up right there.   0:43:50.5 Balaji Reddie: Right.   0:43:52.0 Andrew Stotz: And the whole thing about training is fascinating because when you think about it, you think about someone like Dr. Deming, you think statistics, you think theory, you think this, but then here he is down on the factory floor understanding the importance of just a simple thing like training.   0:44:10.3 Balaji Reddie: That's right. That's right.   0:44:11.1 Andrew Stotz: I just found that that's what made him so down to earth, I think, when...   0:44:14.6 Balaji Reddie: Absolutely.   0:44:17.3 Andrew Stotz: When I encountered him, for sure. So, yeah. Wonderful.   0:44:20.5 Balaji Reddie: All right.   0:44:21.3 Andrew Stotz: Well, is anything you want to add before we wrap up?   0:44:24.4 Balaji Reddie: No, I think we're going at a good pace. I think this is fine. And so four, five, and six, work very closely with your suppliers. Keep looking for problems. I mean, we don't look at problems as a negative thing. It's something that we did not anticipate. Let's look at it that way. We were not prepared for it. When someone comes and tells you things that have gone wrong, be appreciative. Over here, my... The chancellor of our university, in fact, that's one of the things which I found... I was attracted to this gentleman. He founded this university. He made a statement. He said, "Problems are opportunities."   0:45:07.3 Andrew Stotz: Yes. That's the kind of people we want to work for.   0:45:11.1 Balaji Reddie: Oh, yeah.   0:45:13.0 Andrew Stotz: Definitely.   0:45:13.4 Balaji Reddie: When I saw that in his... In his photograph and written there, I said, "I'm at the right place."   0:45:19.0 Andrew Stotz: Wonderful.   0:45:19.9 Balaji Reddie: "I'm at the right place." Because he said just that. And of course, point number six, training is not just how, but why. When a person knows why, they always do a better job.   0:45:31.5 Andrew Stotz: Great. Well, on behalf of everyone listening and everyone all around, I want to thank you again for this discussion, Balaji. We keep going with these and I'm enjoying them just as much as everybody else is, I'm sure. So for listeners, remember to go to deming.org and jump into 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."   0:45:56.8 Balaji Reddie: Joy in work. Thank you so much.   0:45:59.3 Andrew Stotz: Yeah. Thank you.

If you've led an organization or a team for more than a few years, you've probably watched the same problems resurface again and again. Different initiatives. Different people. Same underlying issues.   In this episode, John Dues joins Andrew Stotz to dig into a puzzle Dr. Deming pointed to decades ago: "Experience without theory teaches nothing." John unpacks what Deming meant: experience doesn't come with its own explanation. It can answer a question, but only if you're asking one in the first place. Without a theory of why something works, all that hard-won experience just repeats itself. This episode is a great listen for anyone who has ever wondered why years of effort don't always add up to real improvement. 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 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 why experience isn't enough, and it leads to a pretty interesting puzzle. If experience is such a great teacher, shouldn't businesses and schools and school districts just keep getting better over time? John, take it away.   0:00:42.7 John Dues: Yeah, thanks for having me back, Andrew. Yeah, I think that's exactly the question that got me thinking about this. When I think about my own experience as a school leader and people I've worked with over the years, once you've been, let's say, a principal for 10 or 15 years or a teacher or superintendent, you're a school leader or a teacher leader, you've probably observed hundreds or maybe even thousands of lessons. You've dealt with all kinds of issues, discipline problems, staffing challenges, parent concerns. You've seen curriculum come and go, state assessments change, new initiatives, budget decisions, all kinds of unexpected problems. And yet, I think organizations, complex organizations like schools, you can spend years wrestling with essentially the same challenges year after year, even as the initiatives change and people sometimes change and terminology changes, but a lot of times the underlying problems can remain really, really consistent. And so I started thinking, if experience naturally produces learning, why doesn't all of this experience that gets accumulated reliably produce better organizations? And then I was thinking about something that I read from Deming, who more than 30 years ago said... Probably more than 40 years ago said now, "Experience without theory teaches nothing."   0:02:24.0 Andrew Stotz: This one... That statement always kind of got me when I first heard it. Sometimes I listen to that, "Experience without theory teaches nothing." and think to myself, I know what that means. And sometimes I listen and I think, I don't really know what that means. And so it is kind of a provocative statement because I'm thinking about, well, how did I learn? Did I learn in my past? Are we talking about individual learning or are we talking about learning within an organization? And also, isn't experience the best teacher? So what do you think Dr. Deming meant?   0:03:02.2 John Dues: Yeah, it's like a lot of things I think that he talked about, you sort of have to stop and think. And even after you've thought about it once or twice, you can come back to it and kind of question yourself, "Did I really understand that?" You might have to go talk to somebody. But when I first read it, truth be told, as I was learning this stuff, I thought he had to be exaggerating. I thought the same thing: how could experience teach us nothing? I mean, obviously, like you were saying, we learn things from experience. But I think my interpretation is that Deming's point is subtler than that. I don't think he's saying, or he wasn't saying, that experience has no value. I think what he was saying is that experience doesn't come with its own explanation. Something happens in our classroom or our school and we observe it, but what does that experience mean? What should we conclude from it? What should we do differently next time? I don't think that experience can answer those questions by itself. And in 'Out of the Crisis', Deming wrote, "Experience will answer a question, and a question comes from theory." And I think that's really the key. I think experience becomes useful when we're using it to answer a question about how we think the world works. Again, in our classroom, our school, our school district, that type of thing.   0:04:27.7 Andrew Stotz: Imagine that you're a kid walking down the street and a pit bull comes running at you and bites you on the arm. It's not too serious. The owner manages to get them off you. There's an experience. And it's experience tied with an emotion, which means it's memorable. You'll never forget that. What could you learn from that? Can you learn from that? Does what you learn from that apply to other dogs? It just, it opens up a Pandora's box that I like to think about in that particular case.   0:05:11.8 John Dues: Well, and I think in a case like that, you go through an experience like that, you're definitely gonna have a theory the next time you run into a dog, what you're gonna do, right? Especially if it looks like a...   0:05:23.4 Andrew Stotz: Yeah.   0:05:23.5 John Dues: Yeah. For sure.   0:05:24.4 Andrew Stotz: And this word theory, most of the time we don't really use that in our daily life, but we have words like theory, hypothesis, guess, hunch. So what exactly do you think he's talking about when he says theory?   0:05:45.9 John Dues: Yeah, I think that that can be, for if you're not in academia, I think that that can maybe be one of the biggest barriers to understanding this idea. I think, kind of like what you're saying, when people hear the word theory, you often are imagining something academic or something abstract. But if you think about it, we're using theories constantly, no matter what our work is. And when I'm saying theory, I'm just talking about an explanation for how and why something works. So, really every decision I'm making as a leader rests on some theory. I'm thinking about, if I'm a principal and I decide that something like weekly classroom observations will improve instruction, there's a theory behind that decision. I'm saying really, by putting weekly classroom observations into my practice, I'm saying if we increase the frequency of classroom observations and feedback, then teaching will improve. Right? That's my theory. If a superintendent who's leading his district and they have some issues with reading and they purchase a new reading curriculum, there's a theory, if teachers use this curriculum, student reading outcomes will improve. And this could apply to any number of things. The leadership team of a school district changes the schedule, they restructure what staffing looks like across their schools. You add an intervention period to your school building, the state changes the teacher evaluation system, or the state launches an attendance initiative in response to this chronic absenteeism problem we've been seeing. Every one of these decisions reflects a theory about cause and effect, basically.   0:07:46.5 Andrew Stotz: And there's two things about theory that I like to do when I'm teaching. I like to ask a question that we could prove what the answer is. And let's just say, how many companies in the world have a strong level of profitability and growth relative to peers sustained over a five-year period? That's a very specific question and I have very clear definitions of all of that. And out of... Then I ask the audience, my students, out of 8,500 companies in the sample that I have, how many companies do you think have sustained this outperformance over five years? And then they make guesses as to what they think the answer is, and then I walk them through, here's how I tried to prove it. Now, you could argue that my... You'd define something differently or you'd do the test differently over three years or seven years. One student said, "Why not 10 years?" All of that. But in the end, I say, "Okay, my answer to that question is 400."   0:08:59.9 John Dues: Interesting.   0:09:01.0 Andrew Stotz: And so then that leads me to another step in the process. And what I'm trying to teach my students in Valuation Masterclass Bootcamp is the idea of how do you think like an analyst? An analyst says they come up with a theory or an idea, like, "I think some stock, stock ABC, is gonna double in the next six months." Okay, that's a theory, and you're gonna put money down on that theory. You may try... You need to try to support it with evidence and all that, and then in six months, if you didn't write it down, you'll probably forget it or you'll misremember it.   0:09:37.7 John Dues: Yep.   0:09:38.3 Andrew Stotz: So the question isn't really whether leaders have theories. I think we all have theories, and we're acting on these theories. So where do we go from there?   0:09:49.9 John Dues: Yeah, I think what you just said is exactly right. The question is, I think, whether those theories are explicit enough to examine. So you talked about writing it down, that's a common misstep. We don't write our theories down. I think most of our theories are implicit. We don't say, "Here's my theory about how this system works. Here's my theory about how this classroom works. Here's my theory about why weekly classroom observation will work to improve instruction." We just sort of act, and then something happens. Sometimes the results improve, sometimes they get worse, sometimes nothing really changes. Probably a lot of the time it's that. And then typically what we do is tell ourselves a story about why that outcome happened, whichever one it is, right? And that's, I think, where experience becomes particularly dangerous, because two people can observe exactly the same event and draw completely different lessons from that.   0:10:52.2 Andrew Stotz: And my lesson is the correct one. So give me an example of when you've seen that?   0:11:01.9 John Dues: Yeah, I mean, I think, imagine a school that introduces a new instructional strategy and then test scores rise the following year. It'd be very easy for that principal to say, "The strategy worked. Now let's expand it." Another might say, "Well, wait a second. The tea... Or sorry, the students were simply a stronger cohort that particular year." Someone else might say, "Well, remember, we also changed how we staffed that particular school last year." Another might say, "Now, I just noticed that the state test that we were looking at actually was easier this year than in previous years." Everybody has access to that same, the same instructional change and then the same exact outcome, but they're interpreting that experience through different theories about what caused the results. So, in an example like that, experience doesn't settle the question. Theory determines what questions we ask of the experience.   0:12:16.1 Andrew Stotz: So once you start looking at organizations this way, you say you began seeing theory everywhere? So what do you mean by that?   0:12:25.5 John Dues: Yeah, I mean, I think once you start to think in this way or see in this way, you almost can't unsee it. It's like a lot of things with the Deming philosophy. For example, a strategic plan. We talked about that last time. A strategic plan, the whole plan in and of itself is a theory. It basically says, "We believe these priorities and these actions will move us toward this aim or outcome." A budget is a theory. In that case, we're saying, "We believe putting resources here rather than there will produce greater value." Our approach to professional development, it's a theory about how adults learn and how changes in adult knowledge will affect student outcomes. Another example would be teacher evaluation systems contain theories about motivation and improvement. Accountability systems contain theories about how performance changes. Hiring systems contain theories about what predicts effectiveness. The point here isn't that any particular theory is necessarily right or wrong. The important thing is that these theories already exist. They're guiding our behavior whether we've made them visible or not. And I think the main point here is that if the theory is invisible, then it's very, very difficult to improve it.   0:13:48.2 Andrew Stotz: And you connect this idea to your own experience with strategic planning, which we've talked about a lot at United Schools. So how did your theory change?   0:13:59.7 John Dues: Yeah, I think I kind of mentioned this in the last episode, but several years ago, my thinking about strategic planning really started to evolve and change quite a bit. We had written strategic plans a number of times before. We've often done it with an outside consultant. And we had done that about a decade ago, and it wasn't a bad plan. It had good priorities, useful ideas, and those types of things. But once it was kind of finalized, increasingly as we got away from the point where it was a new plan, it just kind of really quickly became disconnected from the way we actually manage the organization. But I think fundamentally the problem wasn't the plan itself. Our plan reflected our theory at the time about what strategic planning was supposed to do. And our basic theory was something like, you go through a planning process, you identify your priorities, you create the plan, and then you implement it. And basically over time, I've stopped believing that that's an effective approach basically.   0:15:10.1 Andrew Stotz: Yeah. I mean, one of the things that goes on in my head is the, what's the difference between strategy and planning? And now after doing a lot of work on strategy, strategy is some element that we think is something that could really... It's a pivotal point of what in our business we can change to be able to affect a significant outcome. The plan is kind of how we implement that. And that's where you see a lot of plans are very weak because they're just priorities and plans, but the clear vision of where you're going and the unique way that you're gonna break this down and implement it is something that I think a lot about. So you've talked about how your idea has changed over time. Tell me what's changed?   0:16:05.4 John Dues: I think what I eventually realized was that we didn't just need this document that we put a bunch of time and effort into. And it did describe where we wanted to go, but really what we needed to do was we needed the plan to make our thinking visible. We needed it connected to the way we actually manage the organization. And we needed it to be capable of changing as we learned. So that's a delicate balance there, right? And basically we were changing how we thought about what happened after the plan was implemented. We really needed a management system. It affected how we ran our leadership team meetings, it affected how we reviewed performance, it affected how we connected our long-term strategy to annual goals and smaller quarterly priorities and then down to the daily work. So the important learning wasn't that we finally figured out how to write a better strategic plan. It wasn't that. The deeper learning was we changed our theory about what strategic planning was for. And I think that's really the distinction that's most important here.   0:17:19.1 Andrew Stotz: So you're connecting planning with PDSA. So talk to me a little bit about that, because I think this may be the most important part of what you're talking about.   0:17:34.0 John Dues: Yeah, I think they're closely connected. So if organizations like a school system are gonna learn from experience, they need a disciplined way to do sort of three things. First, what we've already talked about, we got to make the theories explicit. The big theories or the main theories that are gonna guide our work, we got to write them down, make them explicit, let everybody in our organization know that they're there. And then second, we have to have a way to test those theories against reality. And then third, we have to revise the theories based on what they learn. And I think that's really where planning, something like the plan within the strategic plan and something like the Plan-Do-Study-Act cycle, really fit together. In either case, planning exists to make theory explicit. But when we create a plan, what we're really doing is putting our current thinking on the table. We're saying, "Here's our aim, here's what we believe matters, here's what we're gonna do, and here's what we expect will happen." And I think a good plan makes all of those assumptions visible to the entire team.   0:18:42.4 Andrew Stotz: So to the listeners out there, the viewers, ask yourself, "Am I making my theory explicit?" You know, that's one of the things I... We're in the process of testing a new strategic move for my coffee business. And we've pulled together a team of the best qualified people to start to test it. And we've definitely written out a lot, but now, just listening to you, I realize that I think we need to do more to make our theory very explicit so that we don't drift also into just doing the work, that we really are trying to make a strategic move that's gonna make an impact. So when we think about plan and making theories explicit, so tell me about how PDSA will test that?   0:19:38.8 John Dues: Yeah, I think that's how I'm kind of thinking about this. Your strategic plan has your priorities, your goals, and maybe even your quarterly actions. But then where your PDSA comes in, the PDSA cycle, it's basically there to then test and improve that theory. So you know PDSAs well, and probably a lot of the Deming community does as well. You make a prediction, we test a change, we observe what actually happens, and then we compare the prediction with the result. And the difference between those things is really where all the value lies, because that's where the learning occurs. So the goal of PDSA isn't merely to answer, did it work? That's often too simplistic. The better question is, what did this test teach us about our theory? Maybe the result matched the prediction, maybe it didn't, but either way, it generated new knowledge for us to then influence the next prediction, the next test, and eventually the plan itself.   0:20:40.7 Andrew Stotz: So what you're saying is that planning and PDSA are really parts of the same system. And what I'm thinking about myself is that I'm working with my accounting team on PDSAs. And you can say it's a very small and narrow part of our business that they're working on because they don't have the influence across the whole business. And they say that to me, and I understand that. So we focus in on what they can change and what testing out what that would mean. And then... But at the corporate level, at the senior level, it is this strategic planning. So maybe you can explain a little bit more.   0:21:17.6 John Dues: Yeah, the way I have started to think about it is that planning, strategic planning, and PDSA are really parts of the same system. So planning makes our current theory explicit, and then PDSA is what we do to improve that theory over time. So sort of put together, they form the learning system within an organization. So again, the plan sort of represents our best current understanding of how we're gonna achieve our aim. And then we actually meet reality. We start to act. We make predictions, we test the changes, we study what happens, we revise our understanding, and eventually that revised understanding gets reflected back in the plan. So you get into this sort of continual cycle, aim, current theory, action, PDSA, learning, revised theory, updated plan, and then that cycle just sort of continues on and on forever, right? And that's a very different conception of leadership from simply creating plans and implementing. Leadership becomes the work of continually improving the organization's understanding of how its system works, basically.   0:22:33.7 Andrew Stotz: Yeah, so I wanna repeat two things that you said. Planning makes our current theory explicit and PDSA improves that theory. That, those are the keys. And one of the things to think about is organizations accumulate activity, I believe is what you're saying, much faster than they accumulate knowledge. And that could be your explanation why they're not improving or improving at the pace that they could be.   0:23:04.2 John Dues: Yeah, I think this is probably true in the vast, vast majority of organizations. This idea of organizations accumulating activity much faster than they accumulate knowledge. And just think about the organization that you've been a part of or observed in. Think about everything that's going on day-to-day, the meetings, the initiatives, the training and professional development, assessments, planning sessions, data reviews, consultants, new programs, new technology, new policies. There is no shortage of activity. I know that's for sure true. This would resonate with 100% of educators, I am sure of that. But the thing is that activity and learning are definitely not... They're not the same thing, so... And that brings us sort of the point back to the intro. You can run the same process year after year without getting any better at it. You can hold hundreds of data meetings without improving your theory about what produces better outcomes. You can implement initiative after initiative, and this is what school systems do without learning very much about the underlying system. So I think the question for leaders isn't just "What did we do?", it's "What did we learn that changes what we believe about how the system works?" And if you can't answer that question, I think what you've done is accumulated experience without accumulating much knowledge. And again, I think this is probably the sort of typical way most school systems operate.   0:24:35.7 Andrew Stotz: Congratulations. You've run the same process year after year without substantially improving it in any way. So how does this change the way you think about what's the leader's job? Because everybody's doing all these things.   [overlapping conversation]   0:24:51.2 John Dues: Exactly. And I'm... Over time... Yeah, I mean, at different times, I've been just as guilty of this as the next leader. But it does completely sort of change how I think about the leader's job. Earlier in my career, I thought what leadership was was largely about knowing exactly what to do. You gain experience, you develop expertise, you get better at recognizing patterns, and then eventually you're in the leadership chair and you're the person who has all the answers. And I think a lot differently now. I think experience matters. Expertise matters, clearly. But I think the leader's job isn't simply to accumulate answers. The leader's responsibility is to build an organization capable of learning. And that, again, goes back to making those theories explicit. I think a big part of this is making predictions a part of how you operate every day. Testing and experimenting should be how you operate every day, studying the variation in your system, making it safe to discover that our assumptions were wrong, and then we sort of model revising our thinking. So the goal isn't to prove that leadership was right, which is sometimes what's happening in places. The goal is to continually improve the theory that's guiding the organization.   0:26:19.8 Andrew Stotz: That's quite a challenge. If someone listening remembers just one thing from this conversation, what would you say?   0:26:28.1 John Dues: Yeah, I mean, I think one, turning back to that original quote from Deming, "Experience without theory teaches nothing." And I'm sure people that have studied Deming will recognize that's the first part of a longer sort of section that goes on about this particular idea. But again, most organizations already have an enormous amount of experience. What they often lack is that disciplined system for turning that experience into knowledge. I think every important leadership decision rests on some theory about how the system works. So you have theories. You just do. That's just a fact. The question is whether you can make those theories visible enough to test them. And that's why I've come to believe that organizations don't improve simply by accumulating experience. They improve when they systematically improve the theories that guide their actions. And I think planning can help make the theories explicit and then PDSA can help us test and improve them. And so together, I think that that's the way organizations will then be able to continually learn towards... Learn their way towards their ultimate aim, their purpose.   0:27:42.8 Andrew Stotz: Yep, that's a great wrap-up. And I think if I had to say one thing, I've taken a lot of notes here and I would say what I like is that planning makes our current theory explicit and PDSA improves that theory. And that just, that loop to me is a big takeaway. So I appreciate that.   0:28:10.3 John Dues: Yeah, it was a great discussion.   0:28:12.3 Andrew Stotz: Yeah. So on behalf of everyone, of course, at The Deming Institute, I wanna 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 did Dr. Deming really mean when he said to "cease dependence on mass inspection"?    In this episode, Balaji Reddie and host Andrew Stotz unpack why one Ford manager's decision to fire his inspection team missed the point entirely. They explain how inspection can help leaders understand and improve the process, rather than simply sort good from bad.    They also explore why Deming's 14 Points must be understood as a system, including his evolving call for cooperation and win-win thinking among employees, customers, suppliers, and even competitors. Whether you are new to Deming or have studied his work for years, this conversation offers a sharper way to think about quality, systems, and improvement.   TRANSCRIPT 0:00:02.0 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 Balaji Reddie, an educator and trainer in the teachings of Dr. Deming and quality management generally. Balaji, how are you doing today?   0:00:25.1 Balaji Reddie: Oh, I'm doing good. We're meeting after a small little gap, and in the interim I think a few things happened. One of the major things, I think you and I were really happy to see that Bill Scherkenbach sent us a lovely photo. So Bill, if you're listening to this, thank you so much, of course we thank you for the photo. We mentioned the last time or rather when we were speaking that I said that there used to be a group of people that used to meet over the weekend. I don't know what the actual protocol was, but all of the so-called core Deming people, you know, like Gipsie Ranney and Nida Backaitis, I hope I'm getting the names right, Barbara Lawton. And I remember Henry Neave saying he was a part of that. So I didn't see that in the photo. So, maybe one of the weekends he was there over in America and so he was there because he mentioned this. And so Bill very kindly said what it was christened. It was christened the Cosmos Club. And then he shared a photo. So Bill, thank you so much. And also helping us identify most of the people in that photograph. If sometime we could share it with the Deming Institute, if they could show it as part of the... If ever we convert this into some kind of video later on with some slides and things like that, they could add that in.   0:01:53.0 Andrew Stotz: Yeah, it's still wonderful.   0:01:53.7 Balaji Reddie: That was wonderful. Yes.   0:01:54.9 Andrew Stotz: It's a great picture. In fact, I'm gonna just make sure that I download it for today's episode.   0:02:00.9 Balaji Reddie: Yes, yes.   0:02:01.7 Andrew Stotz: Because I'll supply it to the Institute and ask Bill if we can use it. Let's see.   0:02:08.4 Balaji Reddie: Yeah, I mean, I presume that he would want us to ask, but he is very big-hearted. I think he wouldn't mind at all.   0:02:14.7 Andrew Stotz: He looks like a spring chicken in that picture. [laughter]   0:02:17.2 Balaji Reddie: Oh, yeah, all of them. There was Joyce Orsini too there. It was nice to see the whole jing-bang gang, as they call them, [laughter] the Cosmos Club. But wonderful. So, yes, so last time we were discussing point number one and we saw his interpretation in the broadest sense of constancy of purpose. I shared also what he was saying towards the end of his life that he said, "Create and publish the statement of the aims and purposes of the company or other organization." So he was envisioning that it's no longer one company. It's a family of companies working together. And so there has to be something that binds all these companies together because today's business is very complex. The family is actually globally dispersed. And so there has to be a common thread that links all of these organizations together and that has to be the statement of purpose. Why do we exist? Each could have their own, you know. Because that's what Deming said in the word interdependent components of a system. And interdependent means being independent and mutually dependent simultaneously. So independent does not mean isolated. It means autonomous, that means you go by yourself. You could have your own purpose, but you need to align it with the purpose of the companies you're actually contributing to, which is amazing. So he asks us to look at it that way. And he said that the purpose should be to impact people in the broadest sense of the term. And you, in fact, brought that up, that quality, and we saw what he meant by quality. And then I think we discussed the purpose of educational institutions, et cetera, et cetera. What should they be?   0:04:07.5 Balaji Reddie: So that was point one. Now we get to point two. And I'll start with the original wordings which he wrote in 1986. So let me just pull that up here. He says here that, "Adopt the new philosophy. We are in a new economic age." And then he very specifically states, "Western management must awaken to the challenge, must learn their responsibilities and take on leadership for change." Now, let's look at it both ways because in 1990 he reworded this completely. But let's get back to what he meant in 1986, the new philosophy. Now, what was the new philosophy? What did he mean then? Recently I heard, or I think I saw, Dr. Joseph DeFeo, that is the current CEO of Juran Institute, release a version of the 14 points, or rather saying that these were Dr. Deming's 14 points. And I saw what he wrote there about point number two, which was his interpretation. Now, when I look deep, actually, it looked more like Dr. Juran's interpretation of the 14 points. Incidentally, talking about Dr. Juran and the 14 points, it's no secret that Dr. Juran always said that Deming did not speak much about management, he spoke only about statistics, blah, blah, blah. But there was, if you know, part of the inner circle of Dr. Deming was Dr. Myron Tribus. And Myron Tribus, if you know, was a director at MIT for some time, right? And around the time Deming was there at the Center for Advanced Engineering Study. And when... He, of course, went and met Dr. Juran to speak to him about the 14 points, and then they had a discussion for half a day on the 14 points, and Dr. Juran agreed with every single one of them. He said, "Yeah." He said, "He's spot on." But then he said that he never spoke of management then, and so he stuck to his version that he taught statistics to the Japanese. Anyway, let's leave that aside.   0:06:19.0 Balaji Reddie: But when he spoke about point two, and that's what Juran's interpretation was, that the new philosophy was quality should be the basis for running a business. That was the new philosophy, right? And he said that top management, of course, Deming always said that top management should be involved because unless that happens, nothing happens inside the company. So the new philosophy, what now we interpret is what Dr. Deming was trying to say in 1986, was "quality is the basis for running an organization," right? And quality, again, what we discussed last time, in the broadest sense of the term, not just of a product or a process, but the way you conduct yourself as a business, as a people. So that was the new philosophy. And he said that you should take on leadership for change, and he aimed it at Western management at that point in time, right? So that was the 1986, and he goes on to explain that, saying that we are living with commonly accepted... Because he was trying to shock the Americans at that time, right? If you try to realize when they woke up to quality in the 1980s, primarily to be... I mean, to their credit, to the American businesses, that they were doing a lot of course correction. They realized that they had done things wrong for 20 years, and a lot of course correction started happening, and they started seeing benefits. So they started interpreting that as improvement when actually it was just a correction. And I think Deming wanted to bring in that shock treatment to them, and he said improvement is not enough, right? So at that point in time, that new philosophy was basically that, okay, you're doing it right, but it's not enough. And that's why it has to come from the top. So top people have to be involved. And that was how they interpreted this.   0:08:12.1 Balaji Reddie: And we also looked at it that way. But in 1990, he changed the wordings of the point two, and that was in light of what he had started professing, which was a System of Profound Knowledge. So I'll just read out what he wrote in 1990. He says now, "Adopt the new philosophy of cooperation and win-win, in which everybody wins. Put it into practice and teach it to your employees, your customers, your suppliers, and" why not "your competitors." So that was, I think, the new philosophy. Much of the stuff, if you start seeing, Andrew, when I look at all the 14 points, the 14 points have to be interpreted through the 14 points.   0:09:06.7 Andrew Stotz: Right.   0:09:07.8 Balaji Reddie: You need to understand the purpose of each point. You need to understand that they're a system. And that's why you can't just read them sentence by sentence and want to implement them, if you know what I'm trying to say here. They're a system by themselves. So you need to interpret them the right way and through the 14 points... I don't know if I'm making sense to you, but that's exactly how these are. He wanted it to be that way. So you can never tell that you've understood it completely. You're getting me? You're learning something new about it every single day. And as you start looking at things around you through the lens of Profound Knowledge, you will see things differently. And sometimes you see some gaps with the sentences that Dr. Deming was uttering, and then you say, "Okay, okay, this, this, this, I understood it now. I need to make this correction." Right? And so you can never say that I've completely understood them. I mean, after all these years, still reading Out of the Crisis, still doing the series with you, has been a catharsis for me. It's revisiting these things all over again. This, despite the fact that I've been teaching this regularly to my students for the last 20-plus years, it's still new for me.   0:10:24.4 Andrew Stotz: And so could I describe what you just said about interpreting it within the system is that really, that's the thing about systems thinking, is that you can no longer look at an individual part. Every time you get a deeper meaning or understanding of an individual part, that changes the way you view the overall system and the interconnectedness of everything.   0:10:48.6 Balaji Reddie: Exactly.   0:10:48.9 Andrew Stotz: Where life would be much more easy if we could just, "Okay, I understand that one thing deeper and deeper. I can make a control chart better and better and better."   0:11:01.1 Balaji Reddie: So, it's crazy. And this realization came on me way back in, I think around '98 or '99, when I was teaching this, the 14 points, for the third or fourth time. I think I mentioned this in episode one and two, where I told you that it was very easy for me to teach the works of Philip Crosby, very easy to teach the work of Dr. Juran, because they gave methods, they gave steps. But Dr. Deming didn't give anything. You just couldn't show the wording on the slide and get away with it. You had to explain what he wanted us to do. And then, I mentioned this before, you can go back and listen to that episode, but I said that it suddenly struck me, "God damn it, these points are a system." And when I was describing this and I explained this to Hazel Cannon, and she said, "We call this in Deming-speak an 'aha' moment. You had your 'aha' moment." She said, "That's the beauty." She told me once that in the middle of the night, at 3:00 in the morning, she understood what he was trying to say, and she called up Dr. Deming.   0:12:11.3 Balaji Reddie: And he was very, very patient. He listened to her. And she said, "I'm sorry. I..." He said, "I knew you'd understand." That's all he said. So he used to be very happy when people used to call back and suddenly say, "We realized it now, what you were trying to say then." So it's a moment of realization. So this point to... If you read some of the notes that he gave to the Japanese in 1950, and incidentally, it's they who made the notebook and then he added on to it, if you know, Elementary Principles of the Statistical Control of Quality, first edition and then the second edition. And when they made the first edition, they had actually done this without his permission. But when they told him that we made these notes, they thought that he would be a little upset because of copyrights, blah, blah. But instead he was so happy that they'd done that, he actually helped them with the second edition. And if you read those notes, a lot of things there where he was speaking about cooperation, about understanding people. So that may not have been explicitly stated by him in his lectures in Japan, they understood it. Right? And that's a very... I don't want to sound communal here, but a very Asian way of looking at it. Because our languages are very metaphorical, so we always look for different meanings to the statements being uttered. And we always look out for what has this person actually not said, which I... Or rather, yeah, has not said, which I have not heard, but I need to hear. Right?   0:13:46.5 Balaji Reddie: So that's amazing, how they looked at what he was saying. I'll give an instance here where he talks about the use of the control chart, and he says that you can use it for training a worker. And then if you see that before and after training, there's been no change in the control chart, well, then the worker's attained his optimum. Then use that worker somewhere else. He talks in a very positive way about understanding people. And then going back to what we spoke in our second episode about the principles of leadership, it comes back there, that choose people in the right way and optimize all of their aims, hopes, et cetera. So coming back here, the new philosophy, basically, now we can interpret it as what he intended it to be in 1990. He said, "Win-win." But the original wordings are also... You don't replace it, you add on to it, right? So we look at it this way, that he meant that quality should be the center point of running your business. People at the top should be involved. And now we talk about cooperation, win-win. And he says this, "Teach and practice this." Now, all these things are easier said than done. We know that. But we should make an attempt. So employees, your customers, your suppliers, and your competitors. Sometimes it could be funny, right? You go up to your competitor and you say, "Look, I think we've done enough of this, going at each other's throat. Let's get together to do something." And obviously the other person will say, "What's the agenda?" They'll think you have some hidden agenda. So it's gonna be difficult when you start doing this. But I think that's become... Slowly people are warming up to that idea of being close to your competitors and learning with them and from them. Right? We don't look at them as a rival in the true sense, trying to cut the other guy down and things like that. But that's the way it is. And if you say that it's a cutthroat thing, but we need to have some things in common before we decide to branch out and go our own way. Right? So there has to be some kind of a cooperation so that win-win... But main thing is to win, that is, everyone wins. He says, "Some may win less than others, but we all win just the same." So the whole purpose was that. Yeah.   0:16:02.4 Andrew Stotz: It's interesting because I remember hearing that when I was younger and the first thing is cooperating just within a team. The second one is cooperating maybe within a department. Another one is cooperating within a business. And then... That's already hard enough to get to. And then he talked about cooperating within an industry. And of course, there are anti-trust laws in America, which he wasn't talking about colluding on prices to take advantage of the position against the customer. But he was also... I think if we look at AI right now, the development of artificial intelligence, and to what extent could the industry work together to safeguard, for instance, or to understand the development of the energy needed to do this, you know.   0:16:54.4 Balaji Reddie: Yes.   0:16:55.3 Andrew Stotz: Or how do countries across the world work together to make sure that one doesn't have an unfair advantage with AI or with energy or that type of thing? So, yeah, it was definitely interesting when I first heard it. But as I look at it now, I get what he's saying about the industry cooperation.   0:17:15.3 Balaji Reddie: Yes, I saw this in our country, in India, where you had the rival mobile service providers getting together and realizing that the hardware needed was the same, the software would be different. So they got together and created a company, you heard that right, a company, that set up mobile communication towers. So there are no multiple towers everywhere for each mobile provider. There's one set of towers, and it was a separate company. And by the way, that company went on to win the Deming Prize.   0:17:48.0 Andrew Stotz: Interesting, interesting. It's interesting that the concept for point number two is... And sometimes I read it and I think, "Adopt the new philosophy." It's kind of obvious, isn't it?   0:18:04.1 Balaji Reddie: Yeah. [laughter]   0:18:05.8 Andrew Stotz: And that's where part of what you're talking about, about understanding all of it through the Deming 14 points lens.   0:18:13.7 Balaji Reddie: Right. Yes.   0:18:14.9 Andrew Stotz: But I can also think... I wanted to highlight back for those people that weren't around at that time. I graduated from university in 1989. I went to work at Pepsi. And so Out of the Crisis came out about 1986. And I remember during my years at university, the Japanese were just killing the American car manufacturers. And the motorcycle companies were killing... Honda and the others were killing Harley-Davidson.   0:18:43.2 Balaji Reddie: Right.   0:18:43.5 Andrew Stotz: Even to the extent that Harley-Davidson and others went to the government to try to get Reagan to give them tariff protection, which he did, in fact. But there was a huge debate I had in class, I remember, about protection versus competition. And it just highlights what was going on. And so Out of the Crisis, as you mentioned, the title, just the idea of shocking people to say, "We're in a crisis," I think at that time it was really apropos. And also the other part is he's talking about Western management.   0:19:21.1 Balaji Reddie: Yes.   0:19:21.4 Andrew Stotz: Western management. And now you look at... Japan was really doing great at that time. And now we have Japan and China that's also made huge strides. And so it's just so fascinating that he was directing it at Western management for sure, that we've got to fix things. And sometimes I look back and I think, "Oh yeah, Western management learned and improved," because we've got so much innovation going on in America as an example and all of that.   0:19:52.6 Balaji Reddie: Right. Right.   0:19:53.4 Andrew Stotz: But sometimes I look at the developments of the Chinese or Japan and I think, "Hmmm...Did we learn? Did we learn?" Look at the trade balance, look at the amount of debt, look at that in the US and you think, "I don't know." I'm curious, how would you score it?   0:20:09.5 Balaji Reddie: Yeah, I mean, that's just what I had to say. So the whole approach towards this whole thing being holistic, not just looking at it from a very narrow point of view and realizing that we need each other, we can't do without... We call them competitors, but they are also helping us do a better job. They're pushing me to look out for what I'm good at and I don't have to put somebody else down to show myself as big. And if I contribute to the industry in a very big way, not only do I gain, others gain, and if I share, then they would also share with me, right? So that realization, I think, is coming in. And if you think about this, it was very interesting, the mathematician by the name John Nash, if you remember him, he actually postulated this in terms of mathematics in 1950, and he got a PhD from Princeton for this. Now, I would give full credit to the jury listening to his dissertation, defending his thesis, that you had to do this because, interestingly, he gets a Nobel Prize for that in 1974. It took 24 years for the world to figure out what he was trying to say. And you want to go read that, he was thinking win-win.   0:21:41.7 Balaji Reddie: So I often wondered if Dr. Deming, John Nash, did they know each other? Obviously, they didn't, but they were thinking and saying the same thing in two different parts of the world. He was doing that here in the US and Deming was talking about this there in Japan, and he was talking about telling the Japs that Japan must see itself as a system. And so all their companies actually work together. We see them as versus; they don't see each other as versus. You're interestingly saying this about the two-wheeler companies, the bikes... In India, we had just one or two bikes before the four Japanese companies came in. It was Suzuki, Honda, Kawasaki, and Yamaha. And they tied up with different Indian companies. Now, of course, after a long time, they've all gone their separate ways. But as a teenager, I remember these. And the funny thing was all four motorcycles were different and all four sold well. All four. And they sold in different parts of the country.   0:22:43.8 Balaji Reddie: I can tell you this firsthand because just after I completed my engineering, I was looking for a job. So I had some time to myself and my mother's friend, she ran a market research agency and she just called up one fine day and said, "Would Balaji care to do this market research for me? It's about bikes." So I had to travel north, south, east, west and tape a conversation with bikers asking them which motorcycles they liked among these four. And these four, the plants were set up at four different places in our country. So north, south, east, west, typically, you know how vast India is in that sense. And the one... It was very interesting. The bikes that were made in the north were sold very well in the south, and some made in the south were sold very well in the west. It was crazy. But there was, of course, one motorcycle that would always stand out and people would say that, "Yeah, this is the one which really..." But that would always be the case. But by and large, everyone did well. Looking back, I say that, wow, they were practicing this without us knowing it.   0:23:51.6 Balaji Reddie: And even now, if you know, I don't know whether this happens outside of India, but Suzuki and Toyota in India have collaborated with each other to use the car body, if you know what I mean. The insides would be their own inside. Suzuk... Maruti is the name of the Indian company that's tied up with Suzuki Motor. So you have Maruti Suzuki and Toyota. They have common bodies, names are different, but the inside is Toyota technology and Suzuki technology. So they've decided, they just realized that they need each other, right? And they're doing exceedingly well, both. Just both.   0:24:33.7 Andrew Stotz: Sharing the platform.   0:24:36.0 Balaji Reddie: Yeah. It's crazy. And you don't start bothering so much about trying to defend yourself, right? You go ahead and focus on what you're good at. So this point two, the new philosophy, what it meant before and what it means now, I would not say it replaced it, but it's just added on to it, where he said that top management should be involved. That was the new philosophy, that quality has to come from the top. Western management waking up, et cetera. The Western managers to see quality is the basis for running your organization. It should be your strategy. And he just says as an extension of that strategy, we need to get together and cooperate and think win-win. So that's the new philosophy. It takes us, he always says, a new reward system would come in. It would be a better applied science. You can read that in The New Economics, that what is the purpose of this entire new philosophy, The New Economics, where he explains this.   0:25:39.2 Andrew Stotz: Yeah.   0:25:41.4 Balaji Reddie: In a nutshell is point two. So the purpose was to shock the Western management at that point in time, but also in a different sense, try to open the eyes of people even now that please don't think small, think big, right? The new philosophy tells us look beyond the boundaries that you've artificially created and see what you can do with the others, including your competitors. And don't look at them as adversaries, rather than partners in something that both of you will grow. Maybe not evenly, but you will grow. So that was...   0:26:18.7 Andrew Stotz: Yeah. One last thing for me on that is just the idea that he reinforces the focus that quality is, the key is the customer in that process of quality.   0:26:33.8 Balaji Reddie: That's right. That's right.   0:26:34.4 Andrew Stotz: As opposed to it's not about quality, quality, quality, control charts and QC circles and all that. It's about what is quality in the eyes of the customer and how do we better deliver that. So that always gave me so much comfort when I learned what he was teaching, that he wasn't just... It wasn't all about quality and tools. It was about quality in the eyes of the customer.   0:27:00.8 Balaji Reddie: Right. So that's why he said tools are just 3%. And you can be 100% excellent at the 3% and still run out of business, right? He always said that. So you need to apply this in the broader sense of the term. So that was...   [overlapping conversation]   0:27:08.5 Andrew Stotz: Yeah. And the problem is if you don't understand the system and you don't understand the whole teaching, then even if you're good at the tools, you may misinterpret from the tools.   0:27:25.6 Balaji Reddie: Yes. So, right, so that was point two.   0:27:30.4 Andrew Stotz: Whoo!   0:27:31.3 Balaji Reddie: So now we come to point three. [laughter] Now point three... Yeah, we just got I think 15-odd minutes, but I'll cover some part of it and I think we'll continue with this.   0:27:34.0 Andrew Stotz: Yeah, yeah. We good. I got time.   0:27:42.5 Balaji Reddie: Point three. Now this again has been so crazily misinterpreted. All right, so I'll start with the wordings once again, I'm referring to the document what he wrote. And he says now, "Cease dependence on mass inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place." Now if you look at that, he was talking much about the act of inspecting and the entire activity-based and saying don't depend. The keyword was "cease dependence," because if you hear what happened in one funny case where the manager from Ford went back and just sacked all his inspectors saying Dr. Deming said we don't need inspection. But that was, I think, overstating it. But nevertheless, the keyword is dependence. Don't depend on inspection. And then he said, build quality into the product in the first place. And then he quotes Harold Dodge who said you cannot inspect quality into a product. Quality is already there. Inspection just reports what's happening. It doesn't tell you where... You know.   0:29:00.4 Andrew Stotz: Yep.   0:29:03.4 Balaji Reddie: Andrew, can you hear me?   0:29:05.8 Andrew Stotz: Yes. Keep going. So what you're talking about is the idea of thinking about quality not from the perspective...   0:29:20.2 Balaji Reddie: Yeah, we got disconnected.   0:29:21.7 Andrew Stotz: Yeah. What I was saying you're talking about is this idea of cease dependence on inspection, that it doesn't mean inspection's completely gone, but it means starting at the beginning of the process and thinking about how do we improve things from there. So continue on.   0:29:37.3 Balaji Reddie: Yeah, so I just said here that he was not so much at that time when he wrote this, like I said here, it was misinterpreted because, yes, he did start with saying the activity, the activity-based thing about inspection, that we should not depend on it. And I think I mentioned that Ford... One of the managers of Ford, misinterpreted that and sacked his inspectors and things like that. But he said that eliminate the need for inspection by building quality into the process and the product in the first place. So the word was dependence. And so he did not say that you need to eliminate the act of inspecting. In fact, it's very interesting what he actually spoke about this in the workbook which you get when you go a four-day seminar on video which was created by General Motors, right?   0:30:30.6 Balaji Reddie: So those video cassettes, and then the workbook that came with that had a very interesting take on inspection. So he said that it doesn't mean that we're gonna stop. He said you'd be a fool to keep yourself in the dark about what's happening in the process. You need to know what's happening in the process. So he's not saying that do away, he's saying use inspection. So now he actually said this, and here's where the interpretation comes in: understand the purpose of inspection. The purpose of inspection is to give yourself more and more knowledge of the process, not for sorting bad from good, because good and bad product come from the same process. We need to fix the process. And this is to be interpreted if you talk about how he looked at this, because if you read what he spoke about the nine heavy losses, when we discuss those, he says that one of the losses was performance appraisal. So I want to ask those people who say that this interpretation, isn't performance appraisal quality by inspection? You're sorting bad from good based on some arbitrary measure that you created in your head. You decide what's good, you decide what's bad. You're God, is it?   0:31:52.9 Balaji Reddie: I mean, Douglas McGregor actually wrote an article on this saying that managers don't like to play God, right? And he's the one who advocated, no, we don't need performance appraisal. It actually harms. And Dr. Deming just said the same thing. So if you read Douglas McGregor's book, The Human Side of Enterprise, there's a new version, the annotated version, where they've given commentary of what some experts or some the interpretations of the text. And I was amazed to see Dr. Deming's name come up there and saying that Dr. Deming also concurred with this and said it in very plain words that do not carry out performance appraisal. And he likened it to using inspection to create quality, whereas we know it doesn't. So fix the process. Right? And then people again take this in piecemeal and start quoting Deming: "A bad system will beat a good person anytime." I don't know what to say here, really. I mean, he obviously he said... He was trying to explain that you cannot judge that person based on the output of the system. I mean, it's an output of the system, the person. So you need to look at it that way. I don't know whether I'm making sense here, but that's the way to look at this point number three. Right? And he says that don't depend. Use the inspection to understand the process. Now, he says here, and I think I've got the text in that, he says, "There will always be inspection. We must never deliberately leave ourselves devoid of information on how the process is doing. Is it still in statistical control? Is there a trend? Were our efforts towards shrinkage of variation or change of level successful? The function of inspection is optimization of the whole system, including suppliers of materials and services and the ultimate consumer." So he very clearly stated this, that this is a system. And this was the system he was talking about, right? And he says here that it's not about just manufacturing, service. It's if you are really, really interpreting this, then you'd also remove performance appraisal in the process, right? Because that's quality by inspection. Uh-oh.   0:34:21.2 Andrew Stotz: The Human Side of Enterprise, the annotated edition, is available on Amazon. Just looking at it right now, this annotated edition came out in 2023. So I haven't read it, so I'm gonna check it out myself.   0:34:42.1 Balaji Reddie: Yeah, I think I lost you again.   0:34:44.5 Andrew Stotz: Yep. I just went through the details about The Human Side of Enterprise and that latest version or edition that's just come out that you've mentioned. It came out in 2023.   0:34:57.0 Balaji Reddie: Right, right. So you could get that, read that book, you'll get to see it. And he very clearly... Did you record that bit where I read out the text?   0:35:09.4 Andrew Stotz: I don't remember that.   0:35:10.8 Balaji Reddie: Okay, I'll just read it out again so you can edit it later. So, yeah, he says here, "There will always be inspection. We must never deliberately leave ourselves devoid of information on how the process is doing. Is it still in statistical control? Is there a trend? Were our efforts towards shrinkage of variation or change of level successful? The function of inspection is optimization of the whole system, including suppliers of materials and services and the ultimate consumer." Did you get that? Did that get recorded?   0:35:45.5 Andrew Stotz: Yeah.   0:35:46.0 Balaji Reddie: Yeah. So that's exactly what he meant. He said that he was not talking about the act, and he said you would have some inspection. Now, interestingly, a very, very different take on this that, yeah, I told you Myron Tribus was talking to Dr. Juran about this, and Dr. Juran gave his interpretation. Because if you know, he invented this badly misunderstood and abused term called cost of quality, right? And if you know why he invented it and what happened later, I don't even want to get into it. He said, "The only way I could grab management's attention was to present my problem in terms of money. If I explained to them and said to them that there is... This process running at 90% efficiency, they would be happy. They said, "Great." He said, "No, it's not great." And then they just wouldn't listen. They said, "90% is great." So he said, "How do I talk to them?" And so he went back to them and said, "Okay, your process is running at 90% efficiency." They said, "Yes." He said, "But you're paying 100% salary to this guy to do 90% good work, and then you're paying 100% salary to another guy to remove the 10% bad work, and then you're paying 100% salary to a third guy to correct that bad work." And that's how he invented cost of quality.   0:37:11.8 Balaji Reddie: Now people have gone and overindulged in this and they start having arguments about what is the category and where should it fit in and... Anyway, what he was trying to say is there are some activities where the more money you spend, the better it is. And so he came up with that cost of prevention and of course, I mean, conformance and non-conformance. In conformance, there were two categories. One was called prevention, where the more money you spend, obviously the better it is, but you get... You know, the returns on them will come much, much later, like training and spending money on the right things like maintaining your equipment, blah, blah, blah, research and development. He also gave a category called appraisal. And appraisal, he says, these are all activities which are necessary evils. [laughter] That means you can't eliminate them, at the same time you should not overtly depend on them to create quality. And one of them was inspection. And he says you should not spend more than necessary on inspection, just enough.   0:38:16.1 Balaji Reddie: Now here's the question I get, how much do we spend? [laughter] And the trick which I read somewhere and I saw that because I interpreted these points both ways. So when you start doing this, you walk into a company, make them calculate how much money they're spending on inspection right now. So let's say it's $100,000 or rupees or whatever. Now you start implementing the improvement processes, you start understanding the process and you start, well, the works, control charts, blah, blah, blah, blah. And then you start seeing that the process is getting better and so your defects are coming down and things are getting better generally. And so you're spending lesser money on inspection, you're spending lesser time on inspection, your resources are going in the right direction. And so that amount starts coming down and you keep doing that and you keep doing that and then you reach a point where you say, "Okay, this is it. I need this much of inspection at a bare minimum to keep myself," like Dr. Deming said, "not devoid of any information." I need to know what's happening. So that need-to-know basis, just enough, now that becomes the cap, right? And you say now, "If after this I see an increase in the money being spent, then... It's not that I'm going to go and just eliminate. I'll try to find out why." And if you look at it, that's exactly what Dr. Deming said, understand the purpose of inspection is to make the process better. The product, of course, will get better and you use the inspection intelligently to understand because good and bad products come from the same process. This is absolutely true for both manufacturing as well as services. You always can look at the activities and see which are the ones which are prone to a lot of mistakes that can happen and then you try to help the person carrying out the process. "Can I eliminate this? Can I reduce this?"   0:40:14.0 Balaji Reddie: And talking about AI, I think AI can help a lot in that, in much of the so-called mundane activities which are repeatable and being done on a regular basis. You can bring in AI over there, use it in the right way. Right? Even for the inspection thing, they talk about it, but yeah, like I said, we need to keep our eye and just keep glancing at it, but not going and standing in front of the process all the time. You don't need to do that. Just... So like Dr. Deming said, watch that... Look at the trend, the impact of my action that I need to inspect. So in that sense, like I said, the act of inspecting will never go away, but our reliance on that will come down drastically. And once in a while, just glancing through, just letting us know that things are going according to plan is the right way of looking at this. Anyway, I think that's all we have time for today, Andrew.   0:41:10.2 Andrew Stotz: Yeah. So I'm gonna wrap up by saying 290 years ago, Benjamin Franklin said, "An ounce of prevention is worth a pound of cure."   0:41:23.2 Balaji Reddie: Wow.   0:41:24.2 Andrew Stotz: Well, it's a lot of what you've just described is the idea of starting at the beginning and trying to reduce the need to depend on inspection. I love the stuff that you talked about about... He didn't say eliminate inspection, he said reduce the dependence. And that really reminded me that there's a purpose. And as you've described, the purposes of inspection isn't only just, "Okay, we don't want something bad going out to the customer," but what it really is about is understanding how are we doing. How have the upstream preventative or improvements that we've done in the upstream resolved or reduced what's happening at the downstream? I think that was a major thing for me as a young guy when I first heard Deming, to understand that, start at the beginning and try to get things right from the beginning, that will reduce the amount of trouble that you have towards the end. So, fantastic.   0:42:22.2 Balaji Reddie: That's true. That's true. All right, then.   0:42:24.5 Andrew Stotz: Well...   0:42:25.1 Balaji Reddie: We meet again next week or week after that to continue this.   0:42:27.0 Andrew Stotz: Yeah, I look forward to it. And for the listeners out there, remember to go to deming.org and jump into DemingNext to continue your journey.   0:42:36.5 Balaji Reddie: Yes.   0:42:37.0 Andrew Stotz: This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, which is, "People are entitled to joy in work."   0:42:45.3 Balaji Reddie: "Joy in work."

"Once you see it, you can't unsee it." What starts as a teacher's search to reduce conflict can become a lifelong journey in leadership and transformation. In this episode, Jake Rodgers shares how discovering Dr. Deming's philosophy changed the way he thinks about teaching, leadership, parenting, and work. From fifth-grade classrooms to leading The W. Edwards Deming Institute, Jake reflects on the lessons, challenges, and breakthroughs that shaped his path. Along the way, he explores why Deming's ideas still matter, how leaders can create more joy in work, and why understanding systems helps us make better decisions for people and organizations alike. A thoughtful conversation about learning, leadership, and what happens when you see the world through a different lens. TRANSCRIPT 0:00:02.4 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 Jake Rodgers. Jake, are you ready to explain your Deming journey?   0:00:18.0 Jake Rodgers: Absolutely. Yeah. I'm so glad to be here.   0:00:20.8 Andrew Stotz: See, I already made a mistake right from the beginning, Jake, so you don't have to worry at all. [laughter] Let me introduce you to the audience. Jake Rodgers is the executive director of The W. Edwards Deming Institute. He's an educator, leader, and consultant with more than 20 years of experience as a teacher, principal, superintendent, and leadership coach. Jake, really, this has been long overdue to get you on the podcast. I think, everybody wants to understand your Deming journey, so take it away.   0:00:53.6 Jake Rodgers: Sure. Thanks, Andrew. It's so good to be here. This is actually my first podcast and first podcast with the Institute. And like you mentioned, long overdue. So I'm excited to be on here with you, and hopefully it's the first of many.   0:01:10.1 Andrew Stotz: Agree.   0:01:11.1 Jake Rodgers: Yeah. Okay. So how did I encounter Dr. Deming's philosophy? I've told this story a couple times, actually. Once at a Deming in Education conference back in 2015. But I was a fifth grade teacher back in 2008, I think it was. And we had just started, we had redesigned our system for how we support kids, who needed additional intervention, math and reading. And we had all the pieces in place. But once we got things going, the whole psychology piece was tough. We struggled with direction in meetings. There was quite a bit of conflict, even among people that were very good friends. We just couldn't get much done in the times that we were trying to figure out what do we do when kids need extra support?   0:02:23.9 Jake Rodgers: So I reached out to our principal, who said, "Hey, if you can find something, we'll pay for it," which is rare in education, increasingly rare. And I came across David Langford. Someone had referenced him, so I didn't know much about what he did, but we needed help. So I just called his office and he returned my call, and I told him a little bit about what was going on, and he said, "Oh, well, I can help you with that and a whole lot more, too." And I wasn't really interested in the whole lot more. I just wanted to stop the arguments and the conflict.   0:03:11.7 Andrew Stotz: That sounds like the alcoholic going to an AA meeting. "Look, I don't need all of that. I just want to stop drinking."   0:03:18.3 Jake Rodgers: Yes. That's all. Yeah. So, gosh, it wasn't too long after that a small team went out to Montana, and went to one of David's four-day conferences. And it totally transformed the way I thought about teaching, learning, leadership. It was a very memorable trip, because of the conference that David ran, but also with the four of us, we stayed up until 1, 2 o'clock in the morning every single night just talking about what we heard that day and what the implications were for the work we were doing. The things that stood out to me the most were bringing joy and meaning back to learning, getting kids more involved in designing, redesigning the classroom system, their learning. One of the great things that David does, he has, along with in his seminar going through the System of Profound Knowledge, he has a lot of tools that he teaches you to actually do the work, right? And so we went back and we started trying stuff, messed up a lot. I called David a lot, got some what he calls quality therapy, and eventually got a couple other team members involved. So our entire fifth grade team started doing this work. And after, I don't know, probably after two or three years, we started to see some good results. And during that time, I had gone back to school to get my principal accreditation.   0:05:17.2 Jake Rodgers: And I remember people telling me, "Jake, you need to, right after you're done with this program, you need to get a job as a principal, because if you wait too long, people will think you're unhireable." But I couldn't stop doing the work with my team, because we were having fun, and I think the kids were having fun. We were seeing some results, and it was something I wanted to get better at. Around maybe a couple years after that first conference, well, during that time, we had David out, and he did a couple more seminars with our school and then with a couple other schools in the school district. And then I got connected with the Seattle Area Deming Study Group, which was co-facilitated by Dave Nave, who I'm sure some of our listeners know, and also Al Viswanathan, two great mentors. Darlene Suyematsu, who used to work at the Institute, was also a part of that. That was a fantastic learning experience. That's the first time I read The New Economics.   0:06:40.0 Jake Rodgers: And I think, I had a fun time learning about how this applies outside of education. And I think the folks there at the study group also enjoyed trying to think about how does this apply in a fifth grade classroom or from a school leadership perspective. And then, I ended up moving to a new district, got a job as a principal, thought, "This worked so well with kids, adults are just going to eat this up." And they didn't. We had some definite bumps along the road, got some harsh feedback my first year.   0:07:28.4 Andrew Stotz: And when you say adults, what... Describe those who it was that you're talking about. What type of adults?   0:07:35.4 Jake Rodgers: Yeah, it was the teachers, the staff, support staff. It was a hard first year, for sure. When you're a teacher, you always think, "Oh, I could do that job as a principal better than they're doing it." But once I stepped into that role, I just had tremendous respect for the pressure, managing and leading change with a lot, you know in the public education system, there's a lot of required inputs, and so managing those in a way that, and a lot of them are antithetical to Deming's teachings. And so trying to protect staff and kids from some of the things that he would say do harm. Performance evaluations were one of those things that were a requirement. We had school-level evaluations from the state on how you're doing, and you get a report card and you basically get graded. And then your superintendent...   0:08:55.6 Andrew Stotz: Ranked.   0:08:56.9 Jake Rodgers: Ranked, absolutely. Yep. And then your superintendent comes in and says, based on the last data point, you need to do this, you need to change. So trying to navigate that constant pressure was tough. And yeah, like I said, I ended up having a lot more respect for people in that role. I remember, the first day of school, a parent walked into the office who did not speak English. They were Spanish-speaking and they were extremely upset, crying. And I had to find somebody to interpret. And turns out somehow their kid had gotten lost at the end of the day and we didn't know where they were either. I mean, long story short, the student went to the wrong place. We found them, all was fine, right. But I remember in the middle of that walking, I had to walk out of my office to, I think, use the restroom or something, and I just looked in the mirror and thought, "What have I gotten myself into here?"   [laughter]   0:10:07.1 Andrew Stotz: It's like you're responsible for everything. Like the buck stops here.   0:10:11.4 Jake Rodgers: Yeah, exactly. But that, as kind of a side note, that actually ended up being a tremendous opportunity. We used some tools with a number of the Spanish-speaking families, learned that, and they were a significant part of our population, 20%, 25%, and had grown quite a bit quickly over the last couple years before I got there. And we had learned that they just didn't feel like a part of the community. And so the system hadn't adapted yet to that change in the community. And so it was a cool opportunity to showcase how the use of some of these tools that we had learned from David and that are common in the quality world, how it raised the voice for people who weren't feeling heard in the community, gave them a lot of agency and autonomy to create some programs that helped the rest of the community understand who they were, what they valued, some of their traditions. So that was kind of a first big success from a situation that was pretty difficult. It turned into a definite win. So anyway, we kind of kept working at things for a couple years. And then in my third year, some of the team members were starting to kind of pick up on the use of some of the tools. We were improving some pretty critical processes at the school. People joked a lot about how much I used flowcharts.   0:12:13.4 Jake Rodgers: That was a good sign that people were starting to approach it with humor as opposed to just avoiding it. And then I had that opportunity to present at the Deming in Education conference in 2015 and brought a couple staff members along. One of them who co-presented with me did a great job. And I think that might have been one of the first couple times I had met Kevin. And we stayed in touch over the years. And then later that year, I got a phone call, it was actually in the spring of 2016. My youngest daughter was four weeks old. And David called and said, "Hey, I just got this job as a superintendent down in Los Angeles for a network of charter schools. I'd like you to come down and work with me, and help train principals, and I think, it'll be a lot of fun." And I said, "Absolutely." And then I got off the phone and I thought, "I probably need to run this by my wife."   [laughter]   0:13:34.4 Jake Rodgers: And it was funny, she had just come home from... She was from Spokane originally, which is on the east side of Washington state, and had early in our marriage always wanted to be back there, and had come home and just said, "You know what? Seattle finally feels like home. This is where I want to be." Right? Like a week before that. And then I drop on her, "Hey, let's move to LA." [laughter] So anyway, we end up going down to LA, got to work with David, which was the chance of a lifetime. We had a lot of fun together. I learned a ton, made some mistakes, learned from those, did some cool stuff down there, worked with some fantastic people, got to know the charter world really well. It's, despite it being an alternative for traditional public education, it's not without its challenges. There's still quite a bit of compliance and still quite a few inputs. You have a little bit more autonomy than in a traditional public setting, but that was a good experience.   0:14:48.2 Jake Rodgers: During that time, I had another opportunity to present at a Deming conference, the conference in 2018 that was down in Manhattan Beach. I did, and a couple of my colleagues at Ingenium also presented there on some of the work that we were doing in education. And then kind of fast-forward a couple years. David had left the organization. I took over as the superintendent. And then, we actually ended up moving to Spokane during that time. And so I was flying down to LA a couple times a month, meeting with our central office staff and visiting schools. And we had schools in Compton, and up in the San Fernando Valley. And with the distance and my kids being the ages that they were, and kind of assessing the needs of the charter system or our charter schools, it felt like they need somebody who could be down there more often. It was having an impact on my family. And so we kind of took a leap of faith, and I finished out the year in 2023, and then I started doing some consulting work. So had a large contract with the state.   0:16:17.1 Jake Rodgers: I did some work with a private school here in Spokane, and yeah did that for a couple years. And then it was actually my birthday in 2024 in December, Kevin reached out and proposed the idea to see, if I was interested in being the next executive director. And again, like when I got the call from David, I was just ecstatic and said, "Yeah, absolutely, I'd love to explore."   0:16:51.6 Andrew Stotz: Did you have any hint that that's what he was thinking, or was that out of the blue?   0:16:56.2 Jake Rodgers: No. I had no idea. Yeah, I think occasionally Kevin and I would text, we would stay in touch, maybe by email, but I hadn't talked to him in a little while. And so I thought maybe he wanted to catch up. So, very pleasantly surprised that that was the direction the call went. And I was wrapping up a consulting contract with a school district here just outside of Spokane. And so kind of had a slow start with the Institute around March, and then started full-time in May. And so I've been here for just a little over a year and learned some things, like how amazing of a job Kevin's done and Darlene had done and the staff to steward the Institute to this point. Dissimilar to a lot of other organizations I've joined, a lot of processes were documented, people really knew what they were doing. So for me, it was really just about spending the first year understanding what's going on with operations, how does the Institute work, and learning to trust our amazing team that they know how to get the work done and keep things moving. And so now...   0:18:32.4 Andrew Stotz: I'm curious before we go on to that...   0:18:34.1 Jake Rodgers: Yeah.   0:18:36.1 Andrew Stotz: You got a chance to really understand the history and you see what's in place now. How do you see the history of The Deming Institute? Did it go through phases or did it shift in its purpose? What are your observations about the history of the Institute?   0:19:01.1 Jake Rodgers: Yeah, good question. I think, well, I know that, there have been some iterations on the aim of the Institute. I know, the board has shifted over time. I'm very grateful for the board that we have now. I think, all of them are very passionate about Dr. Deming's work in the sense that, I think they're all progressive in the sense that they want to figure out how can we make sure that Dr. Deming's legacy continues far into the future. They're very supportive, willing to figure out and try new things. And several of them are, I would say, our mentors, folks I connect with frequently. One of the ones that I talk to most often is Kelly Allan. He's been a tremendous mentor for me. Very thankful for the time that he gives. All of our board members are very, very generous with their time and donations and so very, very appreciative of the leadership that we have in place. And then I also want to mention Kevin's, while he stepped away from the role of executive director, he is very much involved, especially on a strategy level. And there's no way I would have made it this far without his guidance. He just has so much institutional knowledge, obviously, very learned in terms of Dr. Deming's, his grandfather's teachings, and still very much involved in directionally where we're headed and a great thought partner.   0:21:07.2 Andrew Stotz: And when you arrived and you've now understood where the organization, where the Institute's been, what would you say has been the objective of the organization, of the Institute? And if that's changed over time. And then I think, obviously, we also want to hear, and maybe we'll do it in another podcast, maybe we'll do it in this one. But the idea of kind of where is it going?   0:21:36.9 Jake Rodgers: Yeah. I think there's a tension in that maybe has... It's hard for me to say because I've only been here for a year, but I definitely know there's a tension to navigate of how do we honor Dr. Deming's legacy and stay true to that, but also how do we connect it and make it relevant and meaningful to people in a new age? Right? I would argue Dr. Deming's philosophy is probably even more relevant now. I wasn't alive when he first started teaching, but it feels very relevant to me at this point. And so I think initially the Institute did a great job trying to figure out how do we preserve Dr. Deming's legacy. We have a tremendous number of his articles, videos, content from Dr. Deming, his papers. We have a lot of contributions from other folks that knew him and that were part of the community at that time.   0:23:02.1 Jake Rodgers: And I think with the development of DemingNEXT, our online learning management program or online learning program, it's starting to create new opportunities. I think the biggest opportunity right now, and maybe some of the shift or next direction, maybe is a better word, is how do we get that out to more people? And where are people? And that's where we need to be, trying to identify and understand what are the common pain points that folks are feeling, I think is one of the things we're thinking about. And then kind of taking the existing programs and assets that we have and translating them, if you will, to those kind of some of the modern expression of those pain points. And I say modern because I think a lot of the pain points now are probably similar to what they've always been.   0:24:21.3 Andrew Stotz: Pain always hurts in almost the same way. It's just unique ways of arriving at it.   0:24:27.0 Jake Rodgers: Yeah, we're finding newer and faster ways to experience pain.   [laughter]   0:24:34.1 Andrew Stotz: And I guess, one of the things in obviously in the world of business, we're always talking about target market, who's our ideal client, who are we trying to reach? And then later we talk about market size. Is this a big market, a small market? Who are we trying to reach, do you think, from your perspective, or who has the Institute been trying to reach? Who do you think we should be reaching?   0:25:00.6 Jake Rodgers: Yeah, I think there's a couple groups. There's a group of folks that know who Dr. Deming was, know his teachings, and how do we support them with continued learning and maybe even support in implementing his philosophy in their organization or their system. I think there's another group that lives in the quality world that maybe doesn't know Dr. Deming as well and maybe has heard of him. And so then how do we help them understand how his philosophy can amplify some of the work that they're already doing? And then the third group, I would say, is people who, probably younger generations, who are or are not in traditional quality fields or in some of the industries that have typically been most associated with Dr. Deming. And how do we help them understand that this is a better way?   0:26:23.9 Andrew Stotz: And that group seems like it's huge.   0:26:28.5 Jake Rodgers: It's the whole world.   0:26:29.7 Andrew Stotz: Exactly. And I think they're searching, plenty of them are searching for help.   0:26:39.3 Jake Rodgers: Yeah.   0:26:40.5 Andrew Stotz: And that's one of the things that's unique about that group. Maybe the quality people are searching for help, but maybe they feel like, "I got it pretty much covered." The people who know Deming are searching, as you've mentioned, support with learning, support with implementation and stuff. But for the people that have never heard of Deming, is that a market for us? Is there a message that The Deming Institute should be or is or has been getting out? Maybe you can explain a little bit about what are your thoughts on connecting with those people?   0:27:17.1 Jake Rodgers: Yeah, I mean, that's actually part of our forward-looking strategy is there's some learning that needs to be done there. I think there's some challenges with even the folks that know about Dr. Deming. Obviously, the challenge with the latter group is they don't know anything about Dr. Deming, and not only do we need to reach them, but we need to do it in a way that makes sense to them. We need to talk in their language. But with the folks that maybe are familiar with Dr. Deming or in the quality world or in industries that have been more associated with Dr. Deming's teachings in the past is, what is this and how can it help me? I think there's a lot of mis... I've learned there's a lot of misconceptions about Dr. Deming. It's, you know, I mean, you've been studying it. Before the call, you said you met Dr. Deming when you were 24 years old. I mean, I've been learning about his philosophy for 20 years and I can see down, it goes deeper.   [laughter]   0:28:53.6 Andrew Stotz: I just feel so... And sometimes I feel kind of like, oh my God, like I'm rereading New Economics and thinking, "I didn't understand this when I read it."   0:29:04.1 Jake Rodgers: Yeah. Yeah, and it's so cool too. I love the humility of the people in the Deming community, talking with board members, former board members, people that have been at this even longer than you and me, and they still consider themselves learners. But there's got to be a willingness to start and to dig in a little bit.   0:29:34.5 Andrew Stotz: And what has been your perspective of the... There's a lot of different angles that Dr. Deming's message comes at you at. One angle can be just understanding variation opens up a whole new way of the way you think about, let's say, compensation.   0:29:53.1 Jake Rodgers: Right.   0:29:53.7 Andrew Stotz: Or understanding systems thinking and thinking, "Oh, now I understand why this is all messed up." Then understanding intrinsic motivation. There's all these different things, but what do you think is where the biggest need is or the biggest connection that The Deming Institute can make to people with the problems that they're facing?   0:30:25.9 Jake Rodgers: Gosh, I don't know where to start. Let me say this. My... The people in my circle, my friends, family, when they ask what I do, actually, my wife often complains.   0:30:55.3 Andrew Stotz: When my wife asks what I do. [laughter]   0:30:57.4 Jake Rodgers: Yeah. Well, she'll say, "So-and-so asked me, 'What does Jake do?'" And she kind of tries to explain it and she's like, "I'm not really always sure how to help them understand what it is that you do." And so one of the things I try to do is connect with folks on things that are right in front of them. At this stage in my life, a lot of the people that I spend time with have kids in elementary, middle school, high school. And so if it comes up, those are the places I go for examples because that makes sense to them, right? A family is a system, right? There's variation in the way that your kids act. How you respond to that and how you interpret that data will either cause harm or help move things forward.   0:32:03.0 Andrew Stotz: That's a great way of doing it, because everybody understands that. Because...   0:32:08.6 Jake Rodgers: Yeah.   0:32:10.0 Andrew Stotz: And I have sometimes said, "Do you incentivize one against the other?" You don't do that in a healthy family. We generally are saying, "How do we all work together as a unit?"   0:32:25.6 Jake Rodgers: Absolutely. Yeah. And you don't have to use systems, process type language. You just figure out how do you translate that into something that a mom or a dad cares about. And if we're, I think, I might have mentioned, we're doing some, we're doing a, we have a partnership with a school district here just outside of Spokane. We're doing some direct support there and that's about talking about classrooms and how kids feel and what happens, how do staff feel when you make a decision this way versus that way? How do we use that Deming's lens of the System of Profound Knowledge and those four elements to run decisions through before we make them? How do we look at data a little bit differently, understanding that we haven't seen movement in student learning for a certain period of time? So let's talk about how we might look at the data differently, put it in a control chart to see if we can see what the system's actually capable of before making a move, or maybe it's okay, actually, and we should focus on something else. So I think that, just kind of going back to your question, I think that translation piece is really important.   0:33:55.1 Jake Rodgers: And I've been fortunate to, one of the things that I really enjoy about this job is I get to talk to different people all the time. If you ask my kids what I did, they'd probably just say he talks to people on Zoom all day. But I love that, because people are in different industries from IT, tech, manufacturing, education, healthcare, you name it. And so each one of those conversations I'm thankful for because I get to learn a little bit more about them, their industry, and how they're thinking about Dr. Deming's work and how it applies. And I've noticed a number of the people my age and even younger that are expressing a real dissatisfaction with the amount of joy that they have in work. A lot of pressure and move fast, a lack of systemic thinking, lots of incentives, goals, goal-driven management, and not the type of leadership that we would want to see if Dr. Deming were a part of their, his teachings were a part of that organization. So we're still kind of trying to work through how do we translate his teachings for the next generation. And that's part of our strategy, which will also include more and different types of content on social media. We're looking at running some PDSAs on our website to learn from that. Fast, low risk, low cost.   0:35:50.1 Andrew Stotz: Yeah. I was thinking that a good way to wrap this up, because I think it's been a good discussion on your Deming journey, which you've now described really well. And your Deming journey, your personal Deming journey, ends as the executive director of the Deming Institute. And the next phase of your shared journey with the members of the community is exciting. And I think that's where we want to spend some time in the next episode talking about that. But I think what I would just love to hear, maybe in your wrapping up, anything else you want to share, feel free. But I was just thinking, what would you describe as your core takeaways from your Deming journey, the teachings of Dr. Deming? What is it that resonates most with you?   0:36:58.0 Jake Rodgers: I've felt this and I've heard it from a number of people I've spoken with in the Deming community is once you see it, you can't unsee it. Like you're forever changed. So I'm thankful for that. It's definitely reduced my stress and anxiety as I've encountered different leadership roles. I've become less reactionary. I really see it all the time raising my girls. Not a perfect parent by any means, but I do stop a lot and think before I make a decision, or even reflecting on a bad one that I made, running it through those four elements of SOPK. Without it, I don't know that I would come up with the insights and the next directions as quickly and as thoughtfully. And one of the other big things is oftentimes when people first encounter Dr. Deming's teachings, or at least in my experiences, it maybe feels a little, I don't know, if mechanical is the right word, but very process and system oriented.   0:38:31.4 Jake Rodgers: And one of the things that I've learned is how humane Dr. Deming's teachings were. He cared so much about people. And that definitely influences me. And I think initially that's what stuck out to me the very first time I heard about it from David is realizing the cost of kids' motivation and their enjoyment in school. I mean, it's somewhere they have to spend 12 plus years, if they go to college, doing. And the other thing that I found interesting is that learning is intrinsically motivating. If it weren't, I'm not sure that we would have made it as far as we have as a species, right?   0:39:24.3 Andrew Stotz: All those books wouldn't be there.   0:39:26.8 Jake Rodgers: Right. So what are we doing to education that makes it so kids don't want to go to school? Right. And that thinking just hit me hard, and that I was responsible, I was playing a part in that. And so I went back on a mission. I got to get the kids more involved, they got to have more fun while we're learning. And that's carried over into working with adults, now that I have two girls, working with them, raising them. Yeah. So I often ask people, which part of the System of Profound Knowledge did you connect with most at first? And some people are appreciation for a system, real big systems thinkers, some variation, less theory of knowledge at first. But a lot of people say, and especially that I found in education, a lot of people say psychology, because of how we lead and the decisions we make and the information we use and how we view it has a tremendous impact on how someone feels about their work, and then they go home and carry that with them, right.   0:40:47.5 Jake Rodgers: I love our aim "to enrich society through the Deming philosophy." It's more than just helping a business generate more revenue or improve quality. It's those things plus, if people are having fun at work and making a difference, they go home happier parents, happier spouses, partners, friends, family members. It has a, the ripples go far.   0:41:17.2 Andrew Stotz: That's maybe I'll add a couple little things and then we'll wrap up. Let's go back to you talked about the Hispanic lady who was crying that she had lost her child...   0:41:31.3 Jake Rodgers: Yeah.   0:41:31.9 Andrew Stotz: And wasn't sure. And that started to reveal the Deming by using the Deming philosophy and all that, you started to give voice to people and maybe it's voice to the voiceless. And I think, I'll tie that into my kind of big takeaway. I want to go back in time to when I was 24. I was an ambitious young guy, but also was I really was wanted to do good. And I got thrown into a factory as a supervisor and you're just trapped in a system. You only have so much resources. People are exhausted. People have been asked to they've been asked to produce more than the system can produce with less and less tools to do it.   0:42:24.9 Jake Rodgers: Yeah.   0:42:25.1 Andrew Stotz: And when I went to the Deming seminar, the first one in 1989 or 1990, maybe 1990, the first thing I did was I he gave voice to the voiceless because he and it was through theory of understanding variation and that the, you can't expect a different result out of the system unless you change the system.   0:42:54.1 Jake Rodgers: Yeah, absolutely.   0:42:55.3 Andrew Stotz: And that was such a revelation. And I think that's that really brought voice to factory workers and a lot of people that he admired and respected. And so when you talked about being humane, when I was working on my book about Deming and about the 14 Points, Transform Your Business, the guy that was working with me never heard of Deming before and he was helping me edit and structure. And after he finished the whole thing, he says, "I finally figured out Dr. Deming is a humanist." Like, he cares about humans is almost exactly what you just said. And so it just that's kind of what I would connect with with what you said.   0:43:41.9 Jake Rodgers: Yeah, it's true.   0:43:44.6 Andrew Stotz: Well, I think we got, we got a lot more things to talk about in the next episode to hear more about the future of the Institute, what's your assessment of where things are at, what are the resources that you see, where you see things are going. But I think we're going to leave that for our next episode.   0:44:01.2 Jake Rodgers: Yeah, I'm super, yeah, super excited for the next conversation, Andrew. Yeah, thank you so much.   0:44:06.1 Andrew Stotz: Yep. And normally, I end this by saying on behalf of everyone at The Deming Institute, but since you are the leader of The Deming Institute, I'm going to say on behalf of the Deming community, I want to thank you again for this discussion. And for listeners out there, remember to go to deming.org and jump into DemingNEXT, as Jake has mentioned, 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 I think it's pretty much a favorite probably of Jake: "People are entitled to joy in work."   0:44:41.2 Jake Rodgers: Amen.

Why do good strategic plans so often fail to produce different results? John Dues joins Andrew Stotz to explore a simple idea: organizations do not run on strategic plans. They run on the routines leaders and teams follow every day. From meetings and priorities to problem solving and learning, those routines form the management system that shapes results. Listen to a practical conversation about strategy, leadership, Deming, and designing an organization that can continually learn. TRANSCRIPT 0:00:00.0 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. Well, John, your most recent blog post, you titled it "The System Your Organization Actually Runs." Interesting title. And it starts with a question that I think every leader has probably asked at some point, which is, how does this strategic plan actually change what leaders do on Monday morning? Why did you start at that point?   0:00:50.1 John Dues: Yeah, thanks for having me back, Andrew. I think the article kind of gets at a question that I've found myself asking over the years as I've led school systems. And I've seen a lot of different strategic plans, and I've seen a lot of different strategic plans at my own organization. And most of them contain worthwhile goals. Most of them are written by leaders that want to genuinely improve their organization. I think the problem is, it wasn't the quality of the goals. It was... After reading the plan, I often couldn't tell how the leadership of that particular organization was actually going to operate once the plan was finished, or how at least how it was going to operate differently. And this is true of my own organization. The plan would tell me or those leaders where the organization wanted to go but it rarely said like how that was going to happen, what was going to happen differently every day in order to get there. And what I eventually basically came to the realization that this wasn't just a minor oversight or omission, it was like the central issue. And so that realization really changed how I started to think about strategic planning, 'cause I do think that's an important component of running an organization, but it's not the management system itself. It's just the starting point basically.   0:02:22.7 Andrew Stotz: There's a great book on strategy that I like called Good Strategy Bad Strategy by Richard Rumelt and he basically focuses in on how bad most strategy is, and it's just lofty statements and generalizations with very little action and trade-offs that the senior management or the leaders are really making. And so it just plops in people's lap like, "Here's a good-feeling thing." So was there a specific moment when that clicked for you?   0:02:59.4 John Dues: Yeah, that's a good question. I mean, I think what I think of when you mentioned that book, which I haven't read, "Good Strategy Bad Strategy," I think there certainly is good strategy and there is certainly bad strategy. But what I most often was seeing is like pretty good strategy that maybe a consultant would write. Like we did a strategic plan with a consultant, a great consultant about a decade ago and the strategic plan that that work resulted in was great and useful in some ways. But by and large, it did end up in the sort of stereotypical fancy binding and all kinds of colors and graphs and stuff like that, but it was mostly sitting on shelves and closets. It really wasn't formatted like literally and figuratively, it wasn't formatted in a way that was going to guide our work on a daily or a weekly or a monthly basis. So that experience, and I went through a couple of those types of strategic planning sessions with consultants over the years. So then I was thinking about what's actually happening is that, well, if the strategic plan mostly gets shelved, what is it exactly that is guiding and running the organization on that day-to-day basis?   0:04:30.4 Andrew Stotz: Interesting kind of distinction between the plan and the day-to-day running. So let's answer that question. If the strategic plan isn't the management system, what is it?   0:04:45.9 John Dues: Well, I think one thing is some people might be familiar with the management system terminology and some people may not. It probably has a technical meaning for a lot of people that are doing this type of work. But whether you use that terminology, "management system," in your organization or not, every organization has one. And so when a lot of people hear management system, they may picture some type of software system or some more formal operating manual. But that's not what I mean when I say there is a management system whether you realize it or not. I don't mean something formal necessarily. I'm just talking about a management system as a simple collection of like recurring leadership routines that determine how the organization actually functions. So it's things like how are priorities established? When you have meetings, how are they run? How frequently do the meetings occur? What measures are the leaders reviewing on a regular basis? How are problems surfaced in the organization? How do decisions get made? How the information flows? How leaders learn whether the organization is improving. So there's all kinds of these routines, and in some places they are not intentionally designed at all. But some version of those things are happening in every single organization. And in a lot of places they sort of just simply kind of evolve naturally on their own over time. But the thing that's similar, and it's pretty remarkable, is that whether you're doing this deliberately or not, these become like powerful behavior shapers in the day-to-day of an organization. So I think the key thing is that people respond much more to that daily management system, those leadership routines, and those things reinforce more so like the behavior of people that work in an organization more than what leaders say is important or more than what is written in a strategic plan that people often sort of shelve after the initial rollout and don't reference back very often.   0:07:16.7 Andrew Stotz: This makes me think of a quote by a guy named Stafford Beer, who is a systems thinker, and he said, "The purpose of a system is what it does."   0:07:23.8 John Dues: That's it, yes. That is it in essence, yeah.   0:07:31.0 Andrew Stotz: And the meaning of this is like never judge a system by its stated goals. This is also what Rumelt is talking about in "Good Strategy Bad Strategy." Don't judge it by its stated goals or its mission statement or what its designers have intended it to do. Really, we've gotta judge it by what it does. So you're saying every organization already has a management system then?   0:07:57.6 John Dues: Yeah, that's exactly right. I mean, I think that's probably the biggest idea I was trying to get through in that most recent blog post, this idea that every organization has a management system whether they call it that or not. So the question is not its existence. The real question is, is there any intentionality behind the design of that system?   0:08:22.2 Andrew Stotz: So to follow that up, if every organization already has a management system, why do so many strategic plans fail to produce different results?   0:08:33.7 John Dues: Yeah, I mean, I think from what I've seen is that the goals and maybe the tactics and the strategic plans change every three years or every five years depending on how your organization does it but those management routines don't. So you spend all this time creating a new strategic plan and you may even do some things differently for a short time period, kind of like when you make a New Year's resolution, but you kind of settle back into those natural patterns if any changes were made in the first place at all. And so if you're a leader, you kind of just keep holding those same meetings, you kind of keep looking at the same reports, looking at the same data, you make decisions in the same way, you respond to problems in the same way. New initiatives sort of get absorbed up into that old existing management system. And so these initiatives come and they go but the system really doesn't change, kind of just like what you were saying with that quote. And then because the system doesn't change, the results usually don't change very much either. I think one follows from the other. So I think this is why two organizations, like two school systems can have pretty identical strategies and then produce completely different outcomes. And the difference usually isn't the plan, it's that management system that sort of lives underneath the plan. That's kind of how I think about it.   0:10:06.8 Andrew Stotz: It kind of makes me think of like a military. An army is told by their leader, "We're gonna take that hill," and then a new guy comes in and he goes, "I'm gonna change the plan. We're gonna take that hill and that hill." And then a new guy comes in and he goes, "We're gonna take that hill and that hill and that hill." And all of a sudden there's no tradeoff, there's no letting go, there's no sacrifice. And when you don't have a clear tradeoff, you're basically saying that we've got all these resources and we can do all this stuff. So it's interesting because most people would probably say that the problem is execution.   0:10:44.7 John Dues: Yeah. And I think... I mean, you run a business. I mean, execution, obviously...   0:11:01.7 Andrew Stotz: That's hard.   0:11:02.7 John Dues: It's critical. It's very critical. But the execution, how that goes, the execution itself is shaped by that management system. And so I think if you want different execution, you have to design a different set of management routines that people are gonna then follow to implement that plan.   0:11:22.6 Andrew Stotz: Well, it's not only me working in a real business. Of course you are too. So how did this change the way you approach strategic planning at United Schools? What are you doing differently?   0:11:34.3 John Dues: Yeah, I think the last couple rounds of strategic planning, so kind of in the middle of the pandemic, we decided that we were gonna take a stab at creating our own plan internally. And by that, I just mean that we were gonna do it ourselves and not utilize a consultant. And I think there can be times when utilizing someone from the outside, a consultant, there's lots of good ones out there, we've worked with a couple different ones over the years that I'd recommend, but I think there is something to be said for writing the strategic plan yourself if you have that capability. I mean... So we have a very stable senior leadership team, and so because of that cohesiveness, I think that's one sort of condition that allowed us to write it ourselves. And so I think one of the things then that happens when you write it yourself is you internalize it in a different way than if someone else wrote it for you. Even if you're studying it and reading it carefully, there's just something about writing it yourself and workshopping different goals and tactics and things like that that really make you deeply internalize. And that just doesn't happen when you use a consultant for something, in my opinion. And then one other, I think some people might see this as a small thing, but the strategic plan actually is in a Google Document. And the great thing about Google Documents, of course, is that they are dynamic and easy to collaborate in. And so this may seem like a small thing, but when a consultant hands off a finished product, it's often in a slide deck or a PDF. And that's actually kind of hard to change. There are programs where you can obviously change a PDF fairly simply, but there's something about it living in a PDF versus living in a Google Document. Now, it's not something that we're just changing all the time. However, we're regularly in that Google Document and adjusting things, let's say on a quarterly basis as we adjust and as we learn as conditions change and stuff like that. So I think it's sort of like a two-part thing. More internalization happens when you do it yourself, and then we made this decision to put it in a Google Doc and let it live there. And it's sort of a working document that gets continually updated across the life of that particular strategic plan.   0:14:03.5 Andrew Stotz: I've just spent probably 500 hours developing a corporate strategy module for my Profit Bootcamp and I also have been teaching it and developing it with executive education here in Bangkok. And I have 12 activities that, I basically look at the best books on this topic, break it down, and then it's a series of activities. And I just couldn't imagine a consultant, and even myself, what I'm trying to do is guide people through it, but ultimately you gotta think about it and you gotta really... And it starts, in my case it starts with why. Why are you doing what you're doing? And for me, a lot of what I try to do is inspire learning that leads to lasting change. And lasting change is because I had some people in my life that delivered lasting change to me. They provided an environment and the knowledge that allowed me to absorb it and make a lasting change in my life. In my case, it was stop using drugs and alcohol, which has worked for more than 40 years. And so it starts with why and then it goes through a lot of things. But one of the questions is like, what trade-offs are you making? If somebody's not upset with your strategy, you got it wrong because you must... You have limited resources and you're gonna have to pull it from one place to another. And I think that's part of what people miss and what they avoid a lot of times. So I love the idea of developing it yourself and going through it. But the document, of course, itself isn't really the point, is it?   0:15:53.5 John Dues: Yeah, I think the fact that it lives in a Google Document is just kind of one component of it that works for us. But yeah, I think you're exactly right. I mean, I think ultimately what we're looking for the strategic plan to do is kind of reaffirm or reassess what our long-term purpose is. For us, that's a time for us to look at our purpose and our mission, our values, and kind of reaffirm those things or make adjustments if we need to. But I think the key is, and this is where the management system comes, is that the plan then immediately flows into things like annual goals, quarterly priorities. Our senior leaders have management plans that sort of guide their work and outline their work for the year. It's gonna inform what's happening. All of our schools start with a daily huddle amongst the staff team, much like you'll see on the floor of a hospital or something like that. Our biweekly leadership team meetings, the quarterly strategic reviews that we do with our leadership team, and then the annual planning, all that, all of those routines are flowing from the strategic plan, but they're like the management system that sort of brings it alive. And these routines that I just mentioned really create these learning cycles that then feed back into the strategic plan, and that's the sort of updates that it gets over the course of its lifespan. And so if I had to boil it down, it's like the strategic plan provides the constancy of purpose, to kind speak in Deming's terms, and then the management system helps us continually learn and how to achieve that particular purpose.   0:17:35.5 Andrew Stotz: I like your distinction of the routines because that helps us understand like these are cycles that we're going through and routines that we're doing and as long as that routine is serving the ultimate aim of the system, then fantastic. So towards the end of the blog, you say something that really stood out to me, and that is you said, "The real work of leadership is designing an organization that can learn." What do you mean by that?   0:18:08.0 John Dues: Yeah, I think what I was trying to get at is that early in my career, I really thought leadership was mostly about developing better strategy. If you just had better strategy, you'd be on the right course. And today I have a more nuanced view that's only one part of the job. I think the larger responsibility is designing an organization that continually improves its own thinking. And that requires those intentional routines that you were just talking about. And I think, of course, you're gonna review performance over time. If you have a Deming lens, you're gonna study variation. You gotta have some collaborative ways that you're solving problems. For us, that includes running PDSA cycles to refine our methods. And then through it all, you're keeping everyone connected around this common purpose. And I think that when those routines become a part of the everyday work, improvement then becomes much less dependent on a single leader, or sometimes it's a heroic leader that drives the organization. It's the organization itself that's capable of learning then because these various routines have become a part of the behavior pattern of the organization itself.   0:19:24.5 Andrew Stotz: Yeah, that sounds very Deming.   0:19:26.2 John Dues: It's very Deming, very Deming. Yeah, I think I kind of think of one of Deming's greatest insights is that organizations don't improve because people simply work harder. They improve because leaders improve the system deliberately. And this, the article and then this podcast is one particular part of that system, about one particular part of that system, the management system itself.   0:19:54.6 Andrew Stotz: In the strategy course that I do, I talk about identifying strengths. And then I looked at 8,500 companies globally, and I do a measure where I look at each company relative to its global peers each year. And then I say, where is its ranking on two things: how profitable it is and how fast it's growing earnings. Both of these are opposing forces, so it's very hard to have both of them at a high level. But that's what I do as a score I call the profitable growth score. And then I ask the question, how many companies out of 8,500 sustain a number one or number two ranking out of one to 10 over five years? And out of 8,500 companies, it's 400.   0:20:36.7 John Dues: Wow.   0:20:48.2 Andrew Stotz: And I would say that these have a clear competitive advantage that's illustrated in their numbers. Where it's coming from, how they're getting it, okay, those are deeper questions. But this is where I talk with the executives that I work with, the companies I work with, and I ask them, how do we look for a strength in your business that we can convert to a competitive advantage? Because right now, looking at the financial performance of almost everybody, we just have a lot of strengths, which is great. But strategy really is about how do we do that? And the second component of that, which kind of relates back to this learning, is that if you have an all-star in your company and they leave and the sales go down or the business goes down, then you didn't have a real competitive advantage. And so the concept of building learning into a company where everybody's learning creates what I call a hard to copy strength or competitive advantage and that ultimately leads to a long-term performance that is reflected. And it's a little bit like, some people listening may think, "Oh, I'm not into the numbers and all that stuff, Andrew." Well, just imagine that your kid comes to you and says, "Hey, Dad," or "Mom, I'm gonna get A's next semester." And you go, "Right, great. How are you gonna do it?" And they go, "Well, I'm gonna do this, I'm gonna do that, and I'm gonna change this and I'm gonna change that." "That sounds like a good plan. Go for it." And then at the end of the term, they had been getting C's and then they come back and they say, "I got C's." Well, is there no meaning in the output of that? I think there's meaning in it. And then that's ultimately where I say a strength has to convert to be a competitive advantage, and the competitive advantage has to be reflected in the financial performance, or what is it?   0:22:49.8 John Dues: Yeah. Yeah, that's a great sort of sum-up of the discussion today.   0:22:53.2 Andrew Stotz: So if someone's listening and only remembers one thing from today's conversation, what would it be?   0:23:01.7 John Dues: Yeah, I mean, I think what I would hope they remember is that what we've talked about is organizations don't actually run on strategic plans. They run on a management system. So every organization has one, whether they've called it that or not. Everybody has a management system that's sort of running the organization. And I think the key question is whether it's intentionally designed or not. So in my mind, if a leader wants different results, then they have to examine those recurring routines that shape how work is getting done every day. And ultimately, organizations improve not because they have impressive plans but because they have these intentionally built management systems that continually translate that long-term purpose into better daily practice and operations, basically.   0:23:56.3 Andrew Stotz: Yeah, it's great and personally, I really like the routine aspect of what you talked about today 'cause I think about a management system, sometimes it's a little bit nebulous or hard to grasp, but a routine is very clear. And I was just thinking about what often happens is we have routine stacking where the prior manager had these five routines and now a new manager comes in and he added two, now we got seven. And then the next one comes in and he added three, now we got 10. But looking at these underlying routines really was something that hit me with what you're talking about. So that's pretty exciting.   0:24:38.1 John Dues: Yeah. And you drew the battle plan analogy and you talked about the leader with one hill and then the next guy says two hills, the next guy says three hills and it's like, did you take any hills? Those are all strategic plans. The management system is the operation that actually allows you to accomplish that thing.   0:24:56.6 Andrew Stotz: Yeah, exciting. Well, 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 and jump into DemingNEXT to continue your journey. And 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 happens when an organization gets so focused on results that it forgets why it exists? Andrew Stotz and Balaji Reddie dig into the first of Deming's 14 Points, constancy of purpose, using stories like Harvard's answer to Deming's challenge to define a business and Indian manufacturers who pivoted to build PPE during the pandemic. This conversation may change how you think about success, profit, and the real aim of a business. 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 discussion with Balaji Reddie, an educator and trainer in the teachings of Dr. Deming and quality management generally. I'm really excited for today's topic, which is the 14 Points. Take it away, Balaji.   0:00:27.5 Balaji Reddie: Thank you. Thank you, Andrew. So the last time we spoke, we had discussed all the four sciences that Dr. Deming put together. In a nutshell, we said his words, appreciation for a system. That means appreciating that there are no events, there are eventualities, and there is a huge myriad or a huge system of myriad components that create these outcomes. So we need to understand that. We need to appreciate the fact that these are all interconnected, interdependent, these components. Right. And we saw some other attributes that when they interact with each other, the cause and effect are not closely related in time or space. Seemingly disconnected events then turn out to be connected. There exist synergistic relationships. So you can't just straightaway say, "I know." You can say, "From what I understand or what knowledge I have right now about the system, I think."   0:01:34.7 Balaji Reddie: And you always dig deeper. Right. And that gave us the next thing, that the performance of any system, the outcomes are subject to Variation. You will never get the same outcome every single time. It keeps on fluctuating. And then we realize there is a difference between normal and abnormal fluctuations. The typical term that Walter Shewhart said was Variation, and Deming took that forward. He said, "Understand Variation." I would say learn how to think statistically. Right? And statistical thinking is about knowing when to act and when to leave a process alone. Okay. So we said understand the Variation, and you should know when to... There's that normal fluctuation, you would need to work on it continually. But abnormal fluctuation is a little easier to understand, isolate, and take immediate action. So the low-hanging fruit comes from the abnormal fluctuation, what he called as special causes or assignable causes, as Walter Shewhart said.   0:02:41.0 Balaji Reddie: And once you work on them, then your long-term work on the process continues. That never stops because it helps you understand the process much, much better. Right? But there you are faced with the dilemma sometimes. There's so many complications there, and you just need to understand them if you want to know completely what happens in a system. And that's why he said the complete knowledge is never... Is unknown and unknowable. But he said there's a way of doing that, and that's where the Theory of Knowledge came in. We needed to understand that we build upon what we have right now. We start asking questions, and you begin with theories. "I think, I believe." And once you start doing that, you start unraveling the mysteries of the system under study. And last bit here is all this, of course, he was speaking about man-made systems, organizational systems, which all this work is being done by people.   0:03:38.0 Balaji Reddie: And he said that's where the best part comes in. You can never do things all by yourself. You need to cooperate with others. Each one comes with their own theories, and each one has their own system of learning, their own way of thinking. So we need to understand that, whether you are employees inside a company, whether you are people outside the company contributing in the sense of suppliers, or people who are recipients of this in terms of consumers. So everyone, you need to understand people, that they're a part of this entire system. And that's where Psychology comes in. Of course, I used the word empathy. I said understanding them and on. And on a lighter note, I ended by saying that if you really want to sharpen your empathetic skills, you need to either understand your pet or a baby, because these are people who can't express what they want and you just have to have your own theories and then understand them better.   0:04:34.9 Balaji Reddie: But that's what we saw last time. Now we're gonna get to, funnily, what he espoused as his philosophy [chuckle] when he first presented it in the United States in a structured form, right? These were the 14 Points. Now, first of all, the 14 Points are not his philosophy, but they're 14 consequences of his philosophy. You can never really set out to say, "I'm gonna do these 14 Points." But when you start, how do I say, asking the right questions and want to gain Profound Knowledge of what's happening and start looking at things differently and start asking questions, the right kind of questions, just like I said, "What is the purpose of the system? What are the components? How are they connected? How do they work? What is happening right now? Does this normally happen? Is this abnormal?" And then, of course, what are better ways of explaining or expressing what I'm seeing right now?   0:05:43.9 Balaji Reddie: And then finally, taking help from everybody else and bringing their thought processes. When you start asking these questions and start structuring and understanding the organization much better, you eventually see the 14 Points. So they are consequences of his philosophy. They are not his philosophy. You end up with the 14 Points, you don't start with them. Right? Having said that, does that mean we just go through this and be done with it? I said, "No." Now let's understand how he structured these and why he structured it the way he did. Now, they are in no order of preference. In fact, I remember speaking to Bill Bellows about this, and he said when he asked Deming, "Which of the 14 Points are the most important ones? Where do I start?" and he said, "All of them." He said, "Where do I start?" "Start anywhere," he said. You could start anywhere, eventually they're all connected.   0:06:40.7 Balaji Reddie: So the 14 Points are a system themselves. They are all connected to each other. You could start anywhere and you end up with the 14 Points in any case. But since we have to follow a kind of the sequence in which he wrote them, which he presented them, I'm following that sequence to begin with. Now, I'm gonna start with the 1986 edition of the 14 Points, which are there in his book, Out of the Crisis. But in 1990, he updated the wordings of the 14 Points. So I shall pull up my document right here so that I can read out the 1990 edition. Just give me a minute.   0:07:36.0 Andrew Stotz: Just for the audience, go out there and get yours in your hand. Get ready. I'm just going through and getting mine ready.   0:07:42.8 Balaji Reddie: Yes, so. Okay, so here it goes. Let's get to the 14 Points. So here we are. Right. And in what I normally say here, that he often said too, that when you apply Profound Knowledge, the 14 Points help you apply this in the most structured manner. So here we go. So the first is the 1986 edition, point number one, where he says, "Create constancy of purpose toward improvement of product and service with the aim to become competitive and to stay in business and to provide jobs." I think this is an amazing set of words which he's brought here, especially saying to provide jobs, where he said that quality is a ways and means of really contributing to society and not sucking the worst 10%, but adding something more to it to provide more jobs. Now in the 1990 edition, right, now the commentary for this, if you read Out of the Crisis, I've taken an excerpt from there, "Management must demonstrate unshakable commitment to quality, productivity and continual improvement.   0:09:09.8 Balaji Reddie: Your customers, your suppliers, your employees need your statement of constancy of purpose, your intention to stay in business by providing product and service that will help man to live better and which will have a market." So this was his definition of quality. A product or a service possesses quality if it helps someone live better in every way and enjoys a large and sustainable market. So for him, quality had two aspects. One, it must make someone's life better. Whatever you do, whether it's a product or a service, service being an activity. Right. So it should add value to the customer's life. It should make that person's life better. But it should be at a price the customer is willing to pay. Right? So that's the way he looked at it.   0:09:55.2 Balaji Reddie: Now, he changed this in 1990 to this, "Create and publish to all concerned a statement of the aims and purposes of the company or other organization. Management must demonstrate constantly their commitment to this statement." Now he says to publish the statement. And he says not just purpose, but aim. So aim, I think this came from his definition of a system, where he says that a system must have an aim. Without an aim, there is no system. So the aim provides a direction and purpose provides the reason why the system exists. So they go hand in hand. You can't separate these two. But now the commentary for this is, "A 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. It is thus management's task to determine those aims, to manage the whole organization towards accomplishment of those aims.   0:11:07.1 Balaji Reddie: It is important that an aim never be defined in terms of a specific activity or method. It must always relate to a better life for everyone. The aim precedes the organizational system and those that work in it." So...   0:11:23.4 Andrew Stotz: What was that part? "It's important that it's not" what?   0:11:27.2 Balaji Reddie: Yeah, that it's not an activity or a product. It should be something broader than that. It's about adding value to someone's life. Now, you can't go into the other extreme and come up with a motherhood statement like "I want to boil the ocean" or "I want to solve the world's poverty problems," alright? But it must translate into something doable, alright? And it should tell where the organization is heading. But the key word here is "publish it," right? And he says, "and other organization," that means "of the company or other organization." So I believe he started envisioning that in the future it's not gonna be one company, but a family of companies working together, which very simply today we use the term "supply chain" to express that. And I think, I think I mentioned this before in one of my earlier chats that I don't like that term because. It falls woefully short to explain what actually is happening there.   0:12:29.2 Balaji Reddie: I like to use the word provider network. Right? It's a network. It's not just a chain. Chain is more linear. Network is more lateral, all over the place. And these are not just suppliers. These are providers. So, right, he talked about a supply chain in those days. And he also says publishing, that means it should exist in some hard form, right, so that people see it, read it. Okay. Now this kind of, I thought was quite amazing because if you know about, for those who are into ISO 9000, the standard, of course, the latest one which is coming out this year, I'm not well-versed with what they've written or what they've changed in it, but up until 2015, the ISO insisted that companies have a documented statement of their policies, right, a quality policy and objectives. It should be written down. So to say that they could have got this idea from here is not fair, but I guess that you can see the parallel in what he was saying.   0:13:44.8 Balaji Reddie: So publishing. Now, in 2007, this is what I wrote after talking to many, like I said, who attended or helped Dr. Deming in his seminars till the day he passed on, right? And they said, of course, because I was quite intrigued, initially his four-day seminar had a perfect structure and everyone knows who attended that on the second day after lunch you had the red beads experiment. So that never changed even after Profound Knowledge came in. So anyway, coming back to what I was just saying, so initially he spoke a lot about the 14 Points, but after he professed Profound Knowledge, the stress on the 14 Points came down, but it did not disappear altogether. And this I heard from many of those and I asked what he would speak of. So based on that, I just came up with these words. The words are all Dr. Deming's, I've just edited and put it together.   0:14:50.1 Balaji Reddie: So create a statement of the aim and purpose of the organizational system. It must bring out the long-term vision of the organization, preferably stating how it intends to stay in business by making life better for all those impacted in any way. So there could be a direct or an indirect impact. Stakeholders is the term we use right now, right? So purpose describes why you exist. And if you go deeper to find out why a company exists, it has to last beyond the founding father's vision, right? So the statement of purpose must be very clear. Like Walt Disney, we spoke about this, he said, "I'll do anything to make a child smile." That was his purpose, and that's how everything stemmed from that, right? So if you start looking deep, why are we here? Why do we exist?   0:15:46.3 Balaji Reddie: Then once the company starts growing, you don't forget why you set up the company in the first place. You go back to your roots and the statement of purpose is like a North Star. It reminds you of where you're supposed to be, where you started, what you had in mind, right? So it's not that companies don't have it, but we need to revisit it from time to time. And sometimes you need to, it may undergo a change because things don't remain the same, right? Systems keep changing and if everything keeps changing, then you have to revisit the purpose. You don't do it every day though, because it's something that you spoke about and you say that it took me time to come out with this statement of purpose. So I was trying to understand even Apple's statement of purpose where Steve Jobs said making technology accessible, making technology simple, making technology productive is what we are supposed to do here as a company. Right.   0:16:46.4 Balaji Reddie: So he always believed in simplicity. He believed in seeing that people are more productive with the work, the software, or the products that they offer. Right. And it should be something that at times goes beyond just what the customer expects so that that one part is always there. So that's point number one, the statement of purpose.   0:17:11.3 Andrew Stotz: Can I ask a couple questions about that?   0:17:14.2 Balaji Reddie: Yeah, sure, sure, sure.   0:17:15.3 Andrew Stotz: Before we go on, I'm assuming you're gonna go on to number two.   0:17:18.4 Balaji Reddie: Yes.   0:17:20.5 Andrew Stotz: So a couple of things. First thing is about aim. You know that statement, "the purpose of a system is what it does," meaning that ultimately every system, there's an aim. It just may not be the aim that you think it is or that you want it to be. So part of this idea is recognizing that we have to state the aim or else people just, they're gonna just do things the way they've done them. Am I correct in saying that?   0:17:51.2 Balaji Reddie: Yeah. And it brings clarity to whatever you are doing. You start realizing, okay, I thought that we were actually doing this when we should be doing something else. For example, in Out of the Crisis, he gives that example of that trucking company. And he said when that gentleman took Dr. Deming's four-day seminar and then went back to his company and asked his employees, "What business do you think we are in?" Because that's what he used to ask, "What business are you in?" He used to ask that question, right, to the audience. "Any CEOs here? What business are you in? What business do you need to be in? What are you gonna be doing five years from now, ten years from now?" Right. So these are questions which I think you need to look at. If you want a list of questions, then in Out of the Crisis, there is a chapter on just the questions. Right.   0:18:57.0 Balaji Reddie: And that's, if I believe, let me just check. It comes after chapter seven. Is that where it comes in? No, I think... Yeah. Diseases and Obstacles. Okay. It's chapter five, "Questions to Help Managers." So you can find a host of questions there. These are rhetorical questions, most of them, telling you to focus on the job you have on hand. Right. And helps you define your purpose and your aim, both. And it gives clarity. Like I said, sometimes it gives clarity to yourself. What exactly am I doing here? All right. You always begin by saying that. I mean, if you ask people who set up businesses, they'll start by saying, "I did this because I was good at it," and the money came, but "I was good at doing this." And why did you do that? What do you mean by good? "Well, when I did this, I saw people feel happy." Right. And that's why I wanted to do this.   0:20:06.8 Balaji Reddie: And I thought this is the best way for me to earn my money, but the purpose was mainly to make them happy. Right. And then the money came. So that should be the focus. I think I mentioned this once when 1983 was when Harvard Business School was celebrating 75 years of existence. And everyone knew at that time, because Deming had just been rediscovered in America, and he was hot property. But everyone knew his ideas about Harvard. [chuckle] He was scathing. He said they prepared managers for the past and not for the future, and blah, blah, blah, blah, blah. He was very angry. But when they sent him a letter saying that we are making a souvenir of sorts, so can you pen a few words for us? So he was quite lavish in his comments and in his praise. He said, "It's not easy to run a business school and y'all have done it for 75 years. So all credit to you." But he said, "I have just one question for you.   0:21:18.7 Balaji Reddie: In these last two, three years that I have come back into American industry, I see with pain that many people do not understand the purpose of their business. And I see that Harvard has not defined the purpose of a business. Could you define the purpose of a business?" And Harvard came out with an answer which went, "The purpose of a business is to create value at a profit." So the sequence of the words is so beautiful. Create value at a profit. Right? And for a business, you need both. If you're only creating value and no profits, that's not a business. That's social service. And if you only want profits but no value, then that's not a business either. Then you might as well go loot a bank, get 100% profit and no value. And I remember Myron Tribus writing about this at the Kobe shipyard in Japan, right? And this was before Deming landed there, apparently, because there was someone sitting at Kobe who later on had taken Deming's lectures on statistical quality.   0:22:39.4 Balaji Reddie: And then of course, the leadership thing, right, where Deming spoke about the flow diagram. And he said that, he said the light bulb went on because they had a statement there at the Kobe shipyard, "We shall make good ships. At a profit if we can, at a loss if we must, but we shall make good ships." And later on, apparently some American gentlemen came to take over and they changed that and they said, "No, no, no, remove all that profit and loss and just say, 'We shall make good ships.' That's it." So there were times when things started going wrong, right? They went in the wrong direction because they were not looking at it in the clear manner. When they had problems, they said, "No, just make the ship. Just ship it out. It's good." And things went wrong. So they had to reassess and come back. So that was the kind of the idea that we're looking at, the aim and the purpose, and that could change. Right?   0:23:45.6 Andrew Stotz: And I want to add for the listeners out there, in the world of finance, profit is, we also call it cash flow. The cash flow is the numerator in the calculation of value. The denominator is risk. So when we think about what's the objective of a person running a business, it's to maximize value, which many people think means maximize profit, which it does not. It means maximize risk-adjusted profit. So, for instance, if you were breaking the law and doing bad things or mistreating your people ultimately you're raising the risk. Though your cash flow or your profit may be strong, you're raising the risk of that profit or cash flow. And so that's a distinction I like to help people understand, because there are people that just think that the objective of business is maximize profit. No, it's to maximize value. And mathematically we can prove that in the world of finance.   0:24:57.2 Balaji Reddie: Yeah. So I'd just like to paraphrase, when I said that what Harvard said is purpose of a business is to create value at a profit, I'd just like to add something more to that. Create value at a profit in the most ethical way, right? We have to be very ethical about it, because if you're doing wrong things to get your profits and add value, it won't last long. You won't last long as a company. It'll always catch up to you.   0:25:27.4 Andrew Stotz: And I use the word sustainably. That's a kind of a nonsense word these days because everybody talks about sustainability and all.   0:25:34.5 Balaji Reddie: Yeah, they talk in terms about, in a very different context.   0:25:37.8 Andrew Stotz: But the point is, is that are we generating profit in a sustainable fashion? Now the other, I had one more question on this one, and that is if we go back to the words, he talked about the create constancy of purpose for improvement of product and services. And my question to you is, when he talks about aim, sometimes people can get confused, including myself sometimes. And for instance, Clifford Norman and David Williams have been on the show talking about their book Quality as an Organizational Strategy. And so as I've looked at his teachings over time, I've had a question in my mind of is what he's saying that the aim is to improve the business through this focus on quality? In other words, quality is the aim? Or is the aim whatever a company says, "We want to do this, our aim is that"? I'm just curious how you understand those things.   0:26:52.8 Balaji Reddie: I would say quality, but his definition of quality, right? Help someone live better and there must be a market, right? And it must be sold at the right price. So he's been practical, if you look at it. He says that if what you're doing is not making anybody's lives better, then why do it at all? Right? So you need to... You need to look at it from his viewpoint of quality, if I may put it that way. Not that narrow focus on quality of product in terms of free from deficiencies, [chuckle]   0:27:28.9 Andrew Stotz: Yeah.   0:27:30.1 Balaji Reddie: But in a very broad sense what he thought quality is. And also, I found something on the internet, so I'd like to again add that in, that the entire thing is his whole thing is to have happier people. Happy customers... And he doesn't say satisfied, he says happy. So happy customers, happy employees, happy suppliers, society being happy, and the owners. Okay. So what the Japanese interpreted this as, which they call as total quality, is owners, employees, customers, suppliers, and society. When all five are simultaneously satisfied, we call it as total quality. Whereas if you look at it from Deming's point of view, when all five are happy simultaneously, then you attained constancy of purpose. And the longer you can do it, the better it is. So that's his constancy. So the aim and the purpose should be about that. It should be about happier people at work, happier people in the market, consumers, customers, the suppliers, because they should feel a sense of pride...   0:28:56.9 Balaji Reddie: That they're learning something from this company, that growth is happening. Society should feel that this company not only serves their targeted audience, but does not cause harm or is also adding some kind of oblique value to all of us here. We all feel happy interacting with these people in some form or the other. Not necessarily being philanthropic or something, but in a very different sense. We're not getting harmed by these guys. So that, I think, in the broadest sense is what Deming was trying to say to run a company based on constancy of purpose.   0:29:35.4 Andrew Stotz: And the reason why I'm asking is because one of the lessons I've learned just in life in general, certainly from the teachings of Dr. Deming, but just in general, is that if you pick a particular thing or area and you decide that I'm gonna improve this and I'm gonna keep working on improving this, you're gonna end up with something incredible that nobody else has as long as you stick with it. And so that's where this idea of, and if you know what quality means, which is the five groups and things being happy, more jobs, create opportunity, all of that, once you understand that, then quality is driving toward that better outcome. I guess what I'm also thinking about is could a person who's never heard of Dr. Deming just say, "That's my aim right there. I'm gonna take it straight out of what he said, constancy of purpose in relation to improving the product and service with the understanding [chuckle] that that improvement means that." That's it. It's not the aim of "We want to provide transportation vehicles" or something like that. That's more of kind of a corporate communication or. That's where I really want to hear your thoughts on that.   0:30:53.3 Balaji Reddie: Yeah. So when you say that "I want to do this through this product that I am giving," and right now my understanding is that this is the best way to do it, but as the world evolves, obviously there could be many different other ways of doing it and I need to keep revisiting this. As long as my purpose is perfect, I know I'll be able to adapt and adopt very quickly. Right. Otherwise you'll be left behind. What exactly am I here for? Many of the people set up businesses, ancillary units here in my hometown, Pune. They set up, they were basically employees in the parent company and then they saw an opportunity. They saw they were good at this. "I can make this better." So they set up the company to serve the parent company, not realizing that suddenly there could be somebody else coming in. Right. And they were preferred because they understood what the parent company wanted.   0:31:53.5 Balaji Reddie: But if they had just set up by saying, "No, why am I setting up this business? Because I see an opportunity. I can do this well." Okay, then can I do anything else well? What else can I? Why just this product? Why not any other product? Right? I think during the pandemic, many of the manufacturing companies realized that. They said, "We are very good at assembly, so why don't we start assembling PPE kits?" here in India, because PPE kits used to be imported. And I know this firsthand. My student was working in one such logistical company and he said we were importing. 300,000 PPE kits per annum. That was the requirement.   0:32:38.8 Andrew Stotz: What's PPE?   0:32:40.2 Balaji Reddie: Personal protection equipment, which you have to wear, the doctors, et cetera, the health workers during the pandemic. They had to wear that and serve, because we didn't know what was happening. So instead of just masks, just protect themselves completely. In labs, doctors, nurses, they all wore that. Right. So this personal protection equipment, we were importing 300,000 such kits per annum from, I think somewhere in Belgium. And because that was the requirement, but during the pandemic, the requirement went up. And so many of the companies, automotive manufacturing companies, decided that, let's get into this because we know how to do these things, right? We know how to assemble. And within a matter of 45 to 50 days, they built capacity. And imagine this, we were consuming, I am not joking, at the rate of 200,000 kits per day.   0:33:39.4 Andrew Stotz: Yeah. Then you can become a global supplier.   0:33:46.5 Balaji Reddie: And so they had to. But now, see, they did it for that much time because they said, our core business is something else, but we understood our purpose, so let's contribute in a very different way. The other one which they did was many of the manufacturing companies started assembling ventilators. And some of them which were running without electricity, they ran on a mechanical device so that the need for power, et cetera, et cetera, be superfluous. So when you know your purpose, then you can always adapt and adopt very quickly. And I think the pandemic gave us that opportunity to see how many of the companies responded in a very positive sense. In one way to look at it is, "Oh my God, this is it, this is my fate, and we're gonna shut down, we have nothing to do." But the other way is, "No, wait, why are we here? And let's use our expertise in a very different sense. So let's get to action."   0:34:41.3 Andrew Stotz: Interesting. I feel like we can spend a whole episode talking just about one of the 14 Points.   0:34:46.9 Balaji Reddie: That's why I said two episodes for the 14 Points. [laughter] If you don't mind, three also. Because many of the points have been either not discussed in detail or misinterpreted. And there have been changes. Deming himself brought a change in the wordings. That's why I wanted to keep this section, this session separate.   0:35:07.9 Andrew Stotz: Okay.   0:35:12.5 Balaji Reddie: Now you can see why, because I was just setting the scene for the 14 Points. If you want to ask me, it's all profound, very, very profound. [chuckle]   0:35:16.9 Andrew Stotz: Yeah, and I have a lot of questions, so that's good. I've got some clarity now for point one. I think the listeners and the viewers will also get some of that clarity, so that's great.   0:35:26.4 Balaji Reddie: Thank you. And I have been, I still, I just scratch my head about many of the things that he said. Because if people are reading Out of the Crisis, oh my God, you gotta read the text for point one. It's brilliant. I mean, I can't just, you can't just read it out right now. [chuckle] It'll take three episodes just to. But just, many people just say he did give us a method. I think I told you this two episodes ago. He was very clear. We didn't see it. We didn't see it. And he's so clear about what he wanted in innovation. That, of course, I thought that there was a slight difference, I think we spoke about this, invention and innovation. So invention is something new and innovate is to use something differently. Right. So that innovation, I think he confused the two terms, if I may say so. Too brave to make a statement like that. But anyway, he says here that you have to keep improving, innovating, and this obligation never ceases.   0:36:36.6 Balaji Reddie: It's that very clear. And if you see here, there's one, there's a paragraph here, he says, "It's a mistake to suppose that efficient production of product and service can, with certainty, keep an organization solvent and ahead of its competition. It is possible and, in fact, fairly easy for an organization to go downhill and out of business making the wrong product or offering the wrong type of service, even though everyone in the organization performs with devotion, employing statistical methods and every other aid that can boost efficiency." So I think he was highlighting the limitation of the statistical methods, that 97% versus 3% thing, that we are only trying to improve this, but the whole thing comes from the top, that are you providing the right product? I mean, you can't set up a company today making the best typewriters in the world. [chuckle]   0:37:35.4 Andrew Stotz: That's true.   0:37:41.5 Balaji Reddie: So he keeps saying this again and again, that you should publish a resolution that no one will lose his job for contribution to quality and productivity. So I think what we're coming to the end of this session today, we just discussed point one. [laughter] That's the best part. I heard from Henry Neave once that they all formed a kind of a team. Henry had come down to America and they started, they decided to meet Myron Tribus and just about everyone, Nida Backaitis, Barbara Lawton, the gang, and they were so happy to, the stars, right? Gipsie Ranney, I forget the other names, but they were all together and then they decided, let's discuss the 14 Points. And then point one, and it went on beyond lunchtime. They started in the morning. [laughter]   0:38:36.6 Andrew Stotz: That's great.   0:38:46.1 Balaji Reddie: It seems Dr. Deming was so happy. He was just sitting back and just listening and listening and listening. Then they met again the following day and the next day, and then they only came to point number four. And then finally, Brian Joiner, I think, said, "I think we're wasting too much time here. Let's just stop this." And it seems Deming was so upset because he said that Brian Joiner said, "Let's give ourselves 45 minutes for this point and that's it." [laughter]Deming said, "Don't set a target." [laughter]   0:39:22.9 Andrew Stotz: That reminds me of Bill Scherkenbach showing a picture of Deming at the, I don't know, National Education Committee meeting. And he said that they met all day or for two days and they still couldn't come up with the aim of what education, the aim of education in America was at the time. So, yeah.   0:39:42.9 Balaji Reddie: Yeah, I had this problem. It happened at a seminar here in Pune. It was Education for the Future or something like that, Engineering Education: The Next Five Years, blah, blah, blah, I don't know what it was. And there was this one gentleman making a presentation from a school in a city called Bangalore in India. And his topic was Six Sigma in education. And when he came to present, he started by saying, "Six Sigma is 3.4 errors in a million." And I said, "Oh, no." Anyway, then he went on to say, "Okay, so we decided our 10th, grade 10 is a public exam in India. It's a very big deal for a child to sit for that exam, right?" And he said that, "We want to have flawless results. And we've had flawless results for the last eight years. We have so many students, so many, so many students every year, blah, blah, blah, blah, blah." And so if you multiply and all that, and then, "So how do we get this?" Now here came the best part. He said, "In grade nine, all..."   0:40:48.9 Balaji Reddie: All those who had failed or had not reached a certain grade, we threw them out. And so we had flawless results. And I could see people squirming in their chairs because they were all sitting in the audience were teachers. They were squirming in their chairs and then one guy could take it no more. He put his hand up. And I was chairing that session, by the way. You can imagine what was happening to me. Anyway, this gentleman put his hands up and he says, "How can you say that? How can you say that?" He was very agitated. And I could realize, I just stood up and I said, "Okay, Professor so-and-so, please sit down. I get your, I get your sentiment, but we need to do this differently." So I turned to this... And he was a principal, this gentleman... I said, "What is the aim and the purpose of an educational institution?" And this man said, "Results."   0:41:42.4 Andrew Stotz: Yeah.   0:41:45.8 Balaji Reddie: Then I said, "Let's throw this question open to everyone." And I said, "Let's stop." I asked the people organizing the seminar that could we take a small detour here? Let's just stop. Let's not stick to your timetable because I know you're here on a leash. So they said, with permission from the chair and the host college... They were sitting there, the main people... They said, "No, we want this question answered now. What is the purpose of an educational institution?" And there was a lot of goading. I was bringing in Profound Knowledge and I was throwing up questions. And finally we came to the conclusion that the aim of any educational institution is to create a well-rounded individual that contributes positively to society.   0:43:33.9 Andrew Stotz: All right, so on behalf of everyone listening, 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. 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." As we're talking about how do we build that for the future.

"Every time this child was proven wrong, he learned something new." In this episode, Andrew Stotz continues his conversation with Balaji Reddie as they explore two essential elements of Dr. Deming's System of Profound Knowledge: the Theory of Knowledge and Psychology. Through the memorable story of a young boy trying to understand how his father's scooter starts, Balaji illustrates how we build theories, test them through experience, and improve them through learning. The discussion also explores why PDSA begins with theory, why experience alone is not enough, and why understanding how people learn is fundamental to leading improvement. Whether you're new to Deming or deep into his work, this episode offers practical insights into how better questions lead to better knowledge and, ultimately, better management.   Are you ready to learn more about the System of Profound Knowledge? Check out DemingNEXT online learning! https://deming.org/learn/demingnext/   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 discussion with Balaji Reddie, an educator and trainer in the teachings of Dr. Deming, and quality management generally. The topic for today is: The theory of knowledge and psychology. Take it away.   0:00:29.8 Balaji Reddie: Well, thank you. Good morning, Andrew. And it's great to continue our series. So the last time we met, we had begun with the Profound Knowledge, where we said that Dr. Deming brought together four, seemingly disconnected, sciences. He never invented any single one of them, but he saw the connections, and he created, what you could say is, a bootstrap theory of management, if I may say so, a very all-encompassing view of things happening around you. That's why he had no other word to describe it except profound. Because you see things that you normally would not see. That's what we said the last time. And when he proposed that, all of a sudden, I told you the funny thing was that experts in each of those sciences jumped in. I think they realized that they were caught napping, that they did not see the connections, and they did not see a bare minimum set of competencies that you need to have in order to understand things in their entirety. It was very, very... It was amazing that he actually could put that all together.   0:01:44.3 Balaji Reddie: So we started off with the four sciences, in no order of preference. We said here... His words were appreciation for a system. That means, taking into consideration the fact that everything... Having a holistic view, that what we see is not an event but an eventuality, that there's a huge big system behind it. Whatever we get to see in front of our eyes, we're just getting to see the effect. So appreciating that, that's what he said, for a system, a systemic view. I just used a different word, I said connectedness. And I said that from now on, we say that there are no events, there are only eventualities. Which means when something happens in front of our eyes, we always question... We bring in the concept of time and space; that the origins of this, what I'm seeing in front of my eyes, lie somewhere else and maybe actually in a different time frame. So I need to study deeper in order to understand why I'm seeing this in front of my eyes. And you gave that fantastic example of coffee beans, where you said everything has to happen at the right time. So that was the first one.   0:02:54.1 Balaji Reddie: Second one, was about understanding variation. And I would say, that's statistical thinking. I think around 1998, I saw someone come out with the definition of statistical thinking. And they said that it's a holistic view of looking at a process, that everything in the world, happens in the form of a process, and all processes are subject to variation. And understanding and reducing that variation, is synonymous to increasing quality. Now, I'd just like to make a slight change there. Yes, all processes are subject to variation, but talking about reducing... I think, understanding and managing that variation, would lead to better quality. And his entire insistence was understanding variation. Although, let me tell you this, in Henry Neave's book, he wrote about this, where he said that in one of the weekend chats that they had with Deming, he made a statement that if I had to reduce my message to managers in two words, I would say: reduce variation. And this, I've heard from both Henry Neave and David Kerridge. For those who are unaware of who David Kerridge was, because he passed away, I think, around 2018 or 2019, I can't remember... Or maybe before. I'm forgetting the year.   0:04:32.1 Balaji Reddie: But this was... He was from Aberdeen, Scotland. And people used to say, he's like an unofficial person who could be the successor to Deming. So he wrote a lot of wonderful papers. So David Kerridge, Henry, and I, were sitting together having dinner, and they were talking about Deming, and they said that, yeah, he did not... There were some things where he could get really, really upset about when he... About performance appraisals. But there are some things when he spoke of Shewhart, Walter Shewhart, he spoke in a very different tone. And then came this topic, that when we told him that you said reduce variation, he said, "I never said that." They said, "But you said it. We have it... We wrote it down, both Henry and I." And he said, "I could have said that in a context, but I don't think I meant it in that way." So for the record, yes, he uttered it; but he meant it differently. I'm quite sure he said to understand and manage that variation.   0:05:35.4 Balaji Reddie: So what is that managing variation? Okay. We saw this last time, in the very narrow sense of the term, that is when Walter Shewhart invented the control chart. He said there are two kinds of variation that exist: natural variation and unnatural variation. And to distinguish between these two, he created the control chart, which was based on... It was an empirical formula, and people confused it to be a statistical thing. He demarcated, brought in two lines, what he called as the upper control limit and lower control limit. And he said as long as the outcomes of any process or system, if you could measure them and you're plotting them on a graph, as long as they lie within these limits, well, that's the natural behavior of the process or system under study. And the moment their performance crosses the limits, one of these limits on the higher side or the lower side, then you can say there's something unique, special, that has happened. So he used the term, random variation, and assignable cause variation. Because he said you could assign a particular cause to the points that lie outside limits. But when you are studying the variation that lie within limits, the variation that lies within limits, then you can't ascribe a particular cause. There is a system of causes acting. This particular difference in approach...   0:06:58.1 Andrew Stotz: That's a great point. The assignable thing is a great, great point. It really helped me just understand it better.   0:07:04.7 Balaji Reddie: Oh, yeah. Because you could assign a particular, that's why he said assignable. And this is random. Assignable, has its advantage that you can isolate it. And initially, he said you could isolate, and you could eliminate, that cause because it is something which is alien to the system under study. And one by one by one, when he said you eliminate all those causes, you land up with a system or a process that fluctuates only within limits, and he called that as a statistically controlled process. Now, he said your real work begins when you start looking into the reasons for each of those points lying within limits, and I made that statement. You don't have one cause, you have a system of causes. Here's where we studied systems the last time, and I'm just refreshing all of this. I said that in a system, you have interconnectedness, you have interdependencies. And then cause and effect are not closely related in time or space. You have synergistic relationships. So when you start studying, it becomes very, very complicated. Because the performance of each of those causes is also subject to variation. So you can never, ever tell with absolute certainty, what is causing the system variation. Because each of the causes is part of a bigger system. So he made that statement that the complete knowledge of any process or system, is unknown and unknowable. He was not being pessimistic; he was being realistic. We discussed this the last time. And so I said, what do we do then? Yeah, we'll come to that. But now comes the other part, which gets really, really interesting.   0:08:46.7 Andrew Stotz: By the way, I want to... Before you move on from the variation, I want to add something. But continue on.   0:08:55.2 Balaji Reddie: Okay. So he said the reason for the point lying outside... And I said it's assignable, what Dr. Deming called as, special cause variation. You can assign a cause, and I said it's alien to the system under study. And I started by saying you can eliminate it. And even Walter Shewhart began by saying, eliminate it. But now, I'm going back on my words slightly. If you eliminate that special cause, it could be a special cause for the system under study, but it could be the common cause of another system which is related to this. And so what can you do? Well, here's the best part that comes in. You reduce the effect of that cause, to the extent that it does not cause any harmful variation here, to the system under study. And that, Andrew, is optimization. "I want this, and I want that", not, "I want this, or I want that." So I need that.   0:10:01.0 Balaji Reddie: Because I can begin with eliminating, but then I have to keep my eyes and ears open. Because this is what I did in my own company when I started implementing all of this. I'll be honest, I drew a control chart, and when I found points lying outside limits and we discovered causes, I used to eliminate them. But since I was exposed to Profound Knowledge, and what Dr. Deming said about optimization, I kept my eyes and ears open to any change that we observed in the company, anywhere. If I... Even if I got a feedback within a day, two week, month later, saying, "See Mr. Reddie, this is what's happening," and I said, "Wait, wait, wait. Let's see the connection." And invariably, the systems would be connected. And so we could not eliminate, we had to reduce. So we had to go back and check. And that's optimization. Because what happens is if you just keep eliminating... Which is a good place to start... The system under study could get attacked by that interrelated, the other system which you have just actually disturbed. And the problem would resurface with a new face. And you would then say, "Wait a minute. We had solved this problem. Why is it back?" So here's where Profound Knowledge comes in. And that's why the word is continual, it's not continuous. You gotta keep at it, you gotta keep learning. So when he said, yeah, that for common causes, or what he called as random causes, they're so complicated... And for these special causes too, they become complicated... Then how do we understand, and what action do we take? Do we just wait on our haunches and do nothing? That's where he brought in the Theory of Knowledge. And I'll begin with his...   0:11:44.1 Andrew Stotz: And maybe I can add something.   0:11:46.3 Balaji Reddie: Yeah, sure. Now you could. Yeah.   0:11:48.7 Andrew Stotz: The first thing I was thinking about, a special cause, or an assignable cause in a factory, particularly in Asia... But maybe also in the US and maybe more in Europe these days... Is a fluctuation in the electricity. Not necessarily a blackout, but that can be a special cause.   0:12:12.1 Balaji Reddie: Right.   0:12:13.6 Andrew Stotz: But just fluctuations in electricity, can cause an impact on a system, so it can be a special cause. And then once you understand it, you may decide, "Hmm, is there a way we can smooth this? Is there a way we can think about the electricity input into this system, which is really critical for this system, by putting something in between the electrical source and this particular system?" So that's an example of the idea of a special cause, potentially, that is just a common cause, possibly, of another system.   0:12:55.3 Balaji Reddie: That's right. In fact, in India, we did have this problem in the 1990s, when the whole world descended into India because of the cost advantage. The rupee got devalued, the dollar really sprung up. And so people found India as a gold mine, when it came to establishing organizations. And what they would do is bring in much of their semi-automatic technologies that they had in the US, or wherever, Europe at that time, into India, which were largely electronic, had components which were electronic. And in India, the temperature conditions are... I mean, you're in Thailand, you know how it is. It's extreme.   0:13:35.1 Andrew Stotz: Yeah.   0:13:36.9 Balaji Reddie: And so it was not ready for that. And we would have these problems with the components conking off. We had to come out with some remedial stuff, some short-term stuff. And then we started discovering things, we started inventing things. And they almost started losing the cost advantage. Then they said, "Okay. Let's get a little smart." When the next set of machines etc., started coming to India... This was in '91-'92, if I remember right. By '93-'94, that realization came in and so they said, "Why don't we send it in with a cooler," the cooling system, "so that no matter what happens outside, the components would be unaffected." But that led to another problem in cities like Mumbai, where you had extensive humidity.   0:14:24.2 Andrew Stotz: Yeah.   0:14:25.3 Balaji Reddie: And that would cause droplets, which would short-circuit the electronic components again. And so they came up with climatizers. It was crazy.   0:14:34.4 Andrew Stotz: Round and round you go.   0:14:36.7 Balaji Reddie: Yeah.   0:14:38.5 Andrew Stotz: That's interesting.   0:14:39.8 Balaji Reddie: You see, when I was exposed to Profound Knowledge for the first time, and when I wanted to teach it, I remember, I used to want to look out for examples; but I found none. And then when I started digging deeper and deeper, I said, "Wait, I do have examples. It's just that I didn't know that I was looking at it differently." And so it was amazing. Like I said, what Dr. Deming said, you see things that you normally would not see. And I began seeing things in retrospect.   0:15:09.4 Andrew Stotz: Yeah. And that's sometimes... I think the teachings of Dr. Deming have made me a very calm and relaxed guy. I no longer freak out over, what I now know, is just normal variation. And I feel like it's a world of people, that you have to react. If you don't react, you're not doing something. And it's almost impossible for most people to see that the next outcome of this, is not a special cause. And I spend a lot of time in my ethics class trying to help young people understand, that there's just normal variation. Which brings me to my last point I wanted to make with what you said. It reminded me of my studies... Which are limited... Of insight meditation, concentration meditation, or Buddhist... What the Buddha taught. And I remember sitting in a temple in Los Angeles many, many years ago, and I thought, "I'm gonna try to learn from this monk."   0:16:24.6 Andrew Stotz: And I left there thinking... So we did meditation, and he said, "Just try to clear your mind. And just..." And so I left that meditation going home thinking, "My brain was on fire," and there's so many things going on. So I went to him, and I studied more, and I learned more. And I realized that I had misunderstood. You're not trying to control your thoughts, or reduce your thoughts. You're trying to observe your thoughts. And once I started to realize, just observe, then I started to make progress in really understanding that reduce will come over time; maybe, maybe not. But observing was really the step. Because once you observe something, particularly with your mind, if you observe thoughts coming out, then that actually means you're somewhat disconnected because it's hard to observe something that's happening. So therefore, you're starting to look at it from a different perspective. And that's what I thought about when you were saying, it's not just reduce, reduce, reduce. It's first, observe.   0:17:40.1 Balaji Reddie: That's right. Yes, understand, see what's happening, ask the right questions, "Does this happen every day? Or has it happened only today?" things like that. And then you could say, "Okay. If it's happened only today, why did it happen only today? Is today a special day?" So that's the understanding of variation in the broadest sense. And that's why statistical thinking is about asking the correct questions, even in the absence of data. It's thinking, statistical thinking. Don't confuse it with statistical methods, where all kinds of mathematical mumbo jumbo come in. This is thinking statistically. And that's where theory of knowledge, where Dr. Deming said, comes in to help us, first, enlist what's unknown. And then from that, you start pinpointing, or segregating what is knowable, faster. And then you... Once you do that, then you start recycling your thoughts and trying to understand those systems much better. And that's the theory of knowledge.   0:18:45.5 Balaji Reddie: Now, just a statement which he said, what is a theory of knowledge? He said, "A statement conveys knowledge, if it relates some cause to some effect; It fits without fail, all the observations of the past; It helps us predict the future with the risk of being wrong." So I'll repeat the whole thing. He said, "A statement conveys knowledge, if it relates some cause to some effect," it provides us information, it relates some cause to some effect. "It fits without fail, all the observations of the past; It helps us predict the future, with the risk of being wrong." Now, if you go through this step by step, when you say here, take this example of a small five-year-old child. At least this is a very, very Asian and an Indian kind of an example, but I'm quite sure people all over the world will relate to this. A five-year-old child, here in India or in Asia, watching his father go to work every day. Father goes to work on, what we call as, a two-wheeler, a scooter as they call it. And if you know, in the old days, you could kickstart the scooter. We didn't have push-button starts, we used to kick the lever. And so this kid is very intrigued as to how does this scooter start. And he knows that he's at that age, if he keeps asking questions, he'll be told, "You'll learn when you grow up," or "Don't waste my time."   0:20:18.2 Balaji Reddie: And so he decides to observe and learn. And so he starts observing his father every morning from the small little balcony that they have. The daddy brought the scooter out into the compound and then put it on stand. And he did a big ritual around the scooter, and then he kicked the lever and the scooter started. And so he would write down. This is happening every day. And then he noticed that the scooter wouldn't start till he kicked the lever. And so he wrote down his first theory: kick is equal to start. Now, he decided to test this theory. A couple of days where he wasn't even in the balcony, he would sit inside the house and he would hear the kicking sound, and he would tell his mother, "Now the scooter's gonna start." And guess what? The scooter started. So this theory can't be wrong. Now, he decided to test the theory differently. He decided to start the scooter one day. So there was nobody at home, he goes to the garage where the scooter is there, and he gives the lever a mighty kick. But it doesn't start.   0:21:23.3 Balaji Reddie: Now, he says, "This is crazy." So he goes and reads the notes that he made. And then he saw a lot of funny things that were happening. His father was taking a bag off his shoulder, putting it on the handlebar, and touching the scooter two, three places and then kicking the lever. So he went and brought his father's bag, put it on his shoulder, took it off, put it on the handlebar, did that whole ritual, and then kicked the lever. But the scooter didn't start. He said, "Now, what's wrong? Maybe I've not observed properly." So the next day, the whole system came under scrutiny. But he didn't observe anything special at all. But then again the next day, and then he said, "Wait, wait, wait, wait. There is something he's doing there. He takes the bag off his shoulder, but then he touches the neck of the scooter on the inside, and then he kicks the lever." So what could that be? And then when he observed the next day, he saw there was a key he was inserting and twisting it. And he said, "Oh, damn." So he wrote down his provisional theory: key plus kick is equal to start.   0:22:23.7 Balaji Reddie: And so again, he tests this when there's nobody at home. He gets the key, inserts it and turns it, then he kicks the lever and the scooter starts. So here's where his theory becomes a little more elaborate: key plus kick is start. Now, this works very well till, months down the line, he hears kicking, kicking, kicking, but the scooter's not starting. And so he comes out and looks at his father. His father's desperately kicking away. And he says, "Looks like the old man's got it wrong." So he comes down and asks his father, "Have you turned the key?" And he says, "Oh yeah. You're trying to teach your father how to start the scooter." "Then why isn't the scooter starting?" "I don't know." So they take it to an elderly gentleman staying nearby. "Look, the scooter's not starting." So that elderly gentleman is quite unperturbed. "Oh, no problem." He does something totally out of the playbook. He runs with the scooter, jerks it into motion, and the scooter starts.   0:23:20.4 Balaji Reddie: So key plus kick completely collapses, and this kid is flummoxed. He asks his father what made the scooter start, and that's where he gets the answer, "You'll learn when you grow up." Now, this kid grows up with the question in his head, "How did the scooter start that day?" And he reaches seventh grade where they're having a subject called science, general science. And the teacher that day in class is discussing Newton's laws of motion. And she starts, "Body continues to be in a state of rest..." etc., etc. "And to every action there's equal and opposite reaction," and, "rate of change of momentum is equal to force." And the moment that kid hears that sentence, "Rate of change of momentum is equal to force"...now here's the point I'm making. To every child sitting in that classroom, this was just information. But one of those things answered a question; it became knowledge. He suddenly realized when his teacher said, rate of change of momentum is equal to force, that's when he said, "When you're running with the scooter or kicking that lever, I'm generating a force which is making the scooter start."   0:24:32.2 Balaji Reddie: And soon, of course, when he grows up, he inherits the scooter, and every time he has a problem, he runs with it, jerks it into motion. But one day he's doing that and then the scooter is just not starting. So he takes it down to the motor mechanic, and the mechanic does something very funny. He goes underneath the scooter and comes out with a contraption called the spark plug and shows him how dirty it has become. Then cleans it, puts it back and then kicks the lever and the scooter starts. So now he's got a big elaborate theory. When I kick that lever or run with the scooter, I'm generating a force, the force ignites a spark, the spark ignites the fuel, and the scooter starts. Now, I know this is not how it happens, but I think I made my point.   0:25:13.9 Balaji Reddie: But if you go through this entire narration that I've just made, if you realize something, that every time this child was proven wrong, he learned something new. And he was proven wrong because he had a theory. It may not have been correct, but it was a theory. So theory is not the opposite of practice; theory is a guide to better practice. And the more your theory is proven wrong, the more you learn. And the theory is based on what you have seen, what you see before your eyes. You liken it to something, an experience, something you've seen, something you watched. And that's how theories are generated. And that's when Dr. Deming said, if you want to understand the complexities in a system, you begin with theory. "I think. I feel. Let's try this." It worked? Great, "Let's do it again." If it did not work? Great, "Let's see under what conditions it would work?" And that's why he said we need to cooperate to understand the system, because when we sit together, each one comes out with a different theory based on what our backgrounds are. I think once we had this discussion, like if I were to start describing to you the road reaching to my place, you already start constructing a mental picture based on whatever you've seen in life. And that's your theory.   0:26:50.3 Balaji Reddie: Now, when you actually land here, you say, "Oh, I thought this and I'm seeing this." So that's what happens with Plan-Do-Study-Act. We're all born with this. It's a natural way of learning. It begins with a theory: I think; I believe; Let's try. And then you actually carry out that set of steps which you think would give you the result. And then you study. "Did I get the result? Did I not get the result?" And then you act. "Maybe I need to modify my theory. Maybe I need to add to it. Maybe just abandon the theory."   0:27:23.6 Balaji Reddie: I remember once somebody asked me this question, "That if we abandon the theory, what happens?" Well, you get to know the limitations of your existing theory. And the more you know where your theory fails, the more powerful it becomes for you. If you can predict failure, you have really understood the process. So when you know that this is gonna fail, then you've really understood this. So this theory, this is a system of learning, and all of us are born with this. We all have this natural inclination of asking questions. So that system of learning which leads to theory, we're born with it. But the problem is this: there are some people who learn by watching, some people who learn by doing, some people who learn by reading, some people who learn by writing. For some people, one word is enough. For some people, you have to keep repeating the theory till the person says, "Okay. I understand it."   0:28:22.9 Balaji Reddie: Now, is this wrong? We're just different from each other. And that, is what Dr. Deming said, is the understanding of psychology. You need to understand the learning process of a person, and then you need to interact with that person. So whether it is an employee in your company, whether it's your customer, whether it's your supplier, you need to understand. And I would reduce that word to being empathetic. Understand, be empathetic, and not just understand what makes that person tick. Broadly, we say learning process. Now, a lot of corollaries that come out of this, that you cannot copy an example without understanding the underlying theory behind it. It's not how that person has been successful, but why. And for that, you need to... Because we come from so many different backgrounds, that's why Dr. Deming said, you need to have operational definitions before you start communicating to each other. So all of these are an outcome of the Theory of Knowledge. One is the concept of experimentation. That means the more you fail, actually, the more you learn. But management rewards only successes. The appraisal system works only on successes. We need to also recognize failures, because that's where you know where it failed and what you need to do next. And as they say, failures are the stepping stones to success, etc. Fine. But if you're doing it in a very structured scientific way, your rate of success would go faster.   0:30:05.1 Andrew Stotz: And I think that's an important part, is the structured way. Because one of the things... I was just teaching a management team, about 35 people, yesterday. And I was teaching them about corporate strategy, and that there's many ways to win in corporate strategy. Could be the low-cost leader, or whatever. But one of the ways I describe, is what I call, know-how. That your firm has some special knowledge, or some special skills, or expertise, that you've accumulated over time. And this brings us to the point of... Because many times, I've thought about the Theory of Knowledge, and thought, "Yeah, we do that." We casually do exactly what you said. We ask a question, we have a little theory, we test it. But the problem is, many companies think that they have know-how as a competitive advantage, until the person with the know-how leaves. And then they realize, "Oh, we just had one superstar." The question is, do we have a formal or structured way of acquiring and disseminating knowledge, till it becomes common knowledge in our company? And that's where the Theory of Knowledge, and the PDSA, I see brings a lot of value.   0:31:36.2 Balaji Reddie: Yeah. So that's why the joke going around is know-how, know-what, but more important now is know-when and know-who. Even if you know who, it leads to the when, what, and how. Sometimes, you tend to thank the person profusely because that person says, "I know who knows to solve this," and then it takes you right there.   0:32:01.7 Andrew Stotz: Here's a fun thought exercise that I like to think of, is that... You and I both read physical books. And I've got thousands of them surrounding me in my office. But we're in a point in time where the future generations are not gonna read physical books. They're gonna read books that are online and...   0:32:27.0 Balaji Reddie: Right.   0:32:29.0 Andrew Stotz: And then we look at someone's house in the future. There's not gonna be books in their house. It's gonna be on their pad, on their phone, in the cloud. Now, one thing that's kind of interesting is, think about... Imagine that there's a solar flare hits the earth and wipes out all the books. They're all gone. In fact, all of our accumulated knowledge, of research studies, and everything. For the first time in human history, there's like this moment where everything's gonna... It wouldn't happen nowadays because people still have a distributed libraries, distribution of the knowledge. And all of a sudden, you could be without knowledge. And so this is part of the reason why, in a company context, it's important to have a method for acquiring, but also a method for consolidating, and collecting, and building knowledge, and upgrading it. Anyways, that was just some fun thing that I've been thinking about in my head. So anyways, keep going.   0:33:35.7 Balaji Reddie: Yeah, no. That's what's going on right now with the HR departments in companies, knowledge management, because they say, like you said, the person leaves and everything leaves along with them. So apparently, what happens is, when they are debriefing after a successful project... And this implementation thing which I read in Dr. Juran, he used to call it the Santayana review, George Santayana, who made that famous statement, "Those who forget the past are condemned to repeat it." And so he would say at the end of the entire project, y'all sit together... And like from the defense, you have this thing called, debriefing. You narrate everything, and it's verbatim. You take down what you went through so that that remains on record. And so we used to do this in our company. At the end of the project, we used to have the last meeting, and the last document that we used to put on the file, which used to close the file, the improvement file, was "Things Gone Right, Things Gone Wrong."   0:34:37.7 Balaji Reddie: And without that, no project file was completed. No project was completed. We used to have that last meeting, and the new team coming in would ask for the recently completed projects, and begin with reading that document first, because we don't want to repeat the same mistakes. And this is the only way. So nowadays, I've seen this, that the HR person also sits around in that meeting and asks the question, "Okay. You took this decision, but what made you take that decision?" Because they want that to be replicated. Turning tacit into explicit. So that that comes from here. If you understand why Juran explained... That's why I keep saying this, that I could understand Juran because I read Deming; and I could implement Deming because I read Juran. They're not mutually exclusive. And so when people get into this stupid argument of who was better, you're losing out on their learning by getting into that silly argument. They were very compatible. Maybe, they had different ways of expressing themselves.   0:35:51.7 Balaji Reddie: And so coming back to what Deming said, he said that this is Theory of Knowledge, and so you are in a continual state of learning when you're dealing with, what you call as, random causes. But in a state of assignable causes, that's the low-hanging fruit. It gives you the instantaneous results that management wants to see. But at the same time, if you're exposed to Profound Knowledge, you know that if you take such drastic steps of elimination, etc., etc., to show those results, the low-hanging fruit, a person with Profound Knowledge would keep his eyes and ears open to note any kind of changes, anywhere, in either a related or an unrelated system. And then make changes accordingly. You can't just leave it at that.   0:36:44.4 Balaji Reddie: So my experience in my company when I started implementing this... Because we had... What? 77 different interconnected processes which were running to make the company... Well, from start to end. Which included some manufacturing, some finance, some personnel. So these are all interconnected. And we found that if you're making changes, they would affect the other processes, sometimes directly, sometimes indirectly. So you have to keep revisiting those processes again and again, and seeing how you can optimize. And my estimate, is that it takes around three, to three-and-a-half years to actually attain some kind of predictability in the entire organization, if you're using good teams and using Profound Knowledge. If you are not using Profound Knowledge, you will gain some very good... You'd have some very quick gains, no doubt about it. But then the other problems may resurface. And if you've seen the path of frustration that Dr. Deming has drawn in, 'Out of the Crisis,' there's a diagram that you reach... You expect improvement and you don't, and it stagnates. And that's exactly what happens when you don't have Profound Knowledge. You tend to stagnate, and in fact, you start going the opposite direction. If you see it as a better way of learning and understanding your processes, then definitely, things can get much, much better. That's how I look at it.   0:38:28.8 Andrew Stotz: Excellent. Right.   0:38:29.9 Balaji Reddie: So in my own company, it took three-and-a-half years, to see things. And then we saw the effect of all this when we had to grow as a company, and from having something like 30-40 people, to close to 300. The growth was crazy. But because we had been exposed to all this, things became easier, let me put it that way.   0:38:57.4 Andrew Stotz: Yeah. It's funny because what I was just thinking about... Normally, when we say, "You have to grow," we're talking about like growing revenue, growing market share. But what you're also talking about, is you have to grow in your knowledge.   0:39:11.0 Balaji Reddie: Yes. You have to.   0:39:13.7 Andrew Stotz: Otherwise you can't manage it.   0:39:17.4 Balaji Reddie: Right.   0:39:20.7 Andrew Stotz: And anything else you want to add on this topic?   0:39:24.1 Balaji Reddie: Well, this is... So this is where you have all the four sciences acting together. So if I were to, in a nutshell, put together what we have just discussed of all the four sciences, I'll just pull up a list of points, and if we can sometime do perhaps a video call... Excuse me... Then... Just give me a minute.   0:39:55.5 Andrew Stotz: Yep.   0:39:56.5 Balaji Reddie: Okay. So here we are. So let's get to Profound Knowledge. Okay. So let's begin.   0:40:07.5 Balaji Reddie: So understanding... So appreciation for a system. The points you need to look at: that cause and effect are not closely related in time and space; that outputs are the results of a myriad of inputs; there exist synergistic relationships among the inputs themselves; And we need to understand the importance of a common aim and purpose for a system to function well. We come to understanding variation. That's learning how to think statistically, that is how to distinguish between matters that require immediate attention, what we call as, assignable cause variation; versus matters that require constant attention, which is what we call as, random cause or common cause variation., And understand that taking cognizance of and managing this variation, is synonymous to better quality. About Theory of Knowledge: the importance of theory; using theory to interpret observations; and experience is not doing the same thing again and again, but doing different things and learning from your failures. So you keep doing... Even if a person says, "I've got 30 years of experience," it could be... I don't say it's always... It could be the same thing being done for 30 years. But doing different things in 5 years, you could gain a lot more experience than doing the same thing for 30 years. And then you understand how to learn faster. The day you discover your learning process, is the greatest day of your life. And the funny thing is you can't discover it yourself. You need outside help. And that could be a mentor, maybe a teacher, maybe a friend, I don't know, it could be anybody. And understanding of psychology: okay, that people are inherently good; they want to do a good job; they learn differently, therefore they think differently. Working on people's learning systems and processes, rather than trying to exhort them, that would be better, learning their processes... And ranking... You cannot compare one person's learning system with another. Each one has their own learning system. You have to learn how to appreciate that and hone it, and make a person better at what they do.   0:42:40.2 Balaji Reddie: So these are the four sciences acting together. And that gives you Profound Knowledge. And we said here when we started, that when you have Profound Knowledge, you ask different questions. So when you start looking at things happening around you, and you start asking these questions... Because Dr. Deming said that people are the only living parts of any organization, and so you need to understand them. So I keep joking about this sometimes, that how do we learn this theory and psychology? The best thing is to... If you have a pet at home, if you can predict the behavior of your pet, then you really have Profound Knowledge. Because here is a living creature who can't communicate to you what they want, and if you can understand that, that's real empathy. When you understand your pet, or whatever.   0:43:43.5 Andrew Stotz: That's competitive advantage.   0:43:45.6 Balaji Reddie: Yes.   0:43:49.2 Andrew Stotz: Fantastic.   0:43:50.4 Balaji Reddie: Also, I keep saying this, when the womenfolk, they take a break when they are expecting. And then they come back to work after they've had their children, they had a child or something, people say that they've come back to work. I said, "Oh, they have not been away from work." They've done work which is so different right now. They've learned so much. So it's unfair to say that you've taken a break. I think women are never on a break. Whether they're in the family way, whatever, they are working. It's just that we define work as something that you do at a place of work, that is an office where they're doing work. Even when they're with a child trying to understand what that damn child is trying to say. I mean, just imagine, they learn how to... What that kid is going through, even though that kid can't communicate. And somehow, they have that instinct. So they have it more than us. I mean, of course, when you have parenting, which is done by both men and women now... During our time, of course, it was more women-oriented. We came from a different generation. But I see that change now. And so I keep saying this, that if you spend time trying to understand babies, or trying to understand your pets, I think you become more empathetic. And automatically, your Theory of Knowledge bit, and your psychology, starts getting stronger.   0:45:21.7 Andrew Stotz: Yes. I'm gonna test the theory. If I give my child this, they're gonna be quiet. Yeah. There you go, Theory of knowledge.   0:45:33.5 Balaji Reddie: There you go.   0:45:34.4 Andrew Stotz: Fantastic. Well Balaji, let's end it there. And on behalf of everyone listening, 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. There's so much there now, it just keeps growing. So, this is your host, Andrew Stotz. And I want to leave you with one of my favorite quotes from Dr. Deming, I just can't stop saying it: "People are entitled to joy in work."

What if the best leaders are not the ones with the biggest ideas? In this episode, John Dues argues that the leaders who make the greatest impact are the ones who create the fastest learning cycles. John and Andrew Stotz explore why small tests often outperform large initiatives, how PDSA builds real organizational knowledge, and why improvement is a learning process, not an implementation process. If your organization is launching new initiatives, this conversation offers a different question to ask: What's the smallest test we can run to learn whether this idea actually works? 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 the Fastest Way to Learn What Works. I love that title, John. Take it away.   0:00:30.0 John Dues: Hey Andrew, it's good to be back. Yeah, I was thinking about talking about leadership today, and I was thinking about who are the leaders that we tend to admire? I think the typical person would say these leaders with big, bold ideas. In my world, a superintendent launches this district-wide initiative, or maybe it's a principal has this sweeping school improvement plan that they've put in place. In your world, maybe some CEO unveils this new strategic direction. We think about these leaders, if they're described, they're visionary, decisive, courageous. But I think, as I've done this study, I've become increasingly convinced that we're paying attention to the wrong leaders in a lot of cases...   0:01:31.6 Andrew Stotz: So the right leaders are the ones that have their pen over their right ear.   0:01:36.9 John Dues: Always. That's the mark. That is the mark...   0:01:39.6 Andrew Stotz: I think I see that on you.   0:01:43.9 John Dues: I'm definitely not describing me. I'm just an observer, observer of the world. But I think these leaders make these big promises, but I'm increasingly convinced that the leaders who we should be paying more attention to are the ones that create these fast learning cycles. So in a typical place, a company or something, a school, they're faced with a problem. These leaders don't immediately ask, "How do we scale this? How do we scale this idea?" I think they're turning to a different question, and that's, "What's the smallest test we can run to learn whether this idea actually works?" It's a very different, very different question. And I think it's tough because this is a question that's not gonna make headlines, but I think it's one of the more important questions that a leader can ask...   0:02:49.9 Andrew Stotz: Isn't a great leader supposed to be doing the big things? You're talking about the smallest.   0:02:52.8 John Dues: The big things, right, the large initiatives, that's what gets attention. But I think the larger the initiative, the problem is the longer it takes to learn whether that thing, that idea, is helping or hurting or maybe having no effect at all. And I think what happens is, and what I've seen in schools repeatedly, I'm sure it's probably the same in the private sector, is oftentimes by the time the evidence actually arrives, if it ever does, so much time, money, and goodwill has been spent that it almost doesn't matter whether the idea itself was successful. All this cost was sunk into training people, all these new expectations have been established, and then we almost become more invested in proving the initiative was the right decision. And then once that happens, it's almost impossible to go about learning if it's actually having the effect that we intended to. And I think a lot of this has to do with many improvement efforts that I see. They start with a solution. They're sort of starting with not a clear definition of the problem, but this idea that they think is gonna have an impact, whatever that is. It could be a new curriculum in a school, an attendance campaign because attendance has been a big thing lately, some type of new evaluation process that they're gonna use with teachers or workers, whatever. But the point is that the assumption is that the solution's known at the beginning and that success really just depends on implementation. But I think the problem I see is that no one stops and thinks, "What if this solution actually doesn't work in our system?" We copy these ideas, we've seen this thing, whatever it is, work somewhere else, and we almost don't even consider whether the context matters. And it's maybe the most important thing to consider.   0:05:11.7 Andrew Stotz: I think about Deming, Dr. Deming, saying, "How would they know?"   0:05:16.0 John Dues: How would they know? Yeah. And I think, again, so much gets sunk into the initiative, all that training, all the money, all the resources, whatever. At a certain point, the organization is so invested that they almost sort of solidify into defending the idea rather than trying to learn whether it's actually working. That tipping point, I think, can happen pretty quickly, especially if it's a large, organization-wide initiative.   0:05:50.5 Andrew Stotz: Yeah, and I can imagine a new person coming... A superstar coming in from another place where they implemented something that really worked, and now they're going, "Let's do it in our..." and that may or may not have the same impact in that new location that that person's responsible for.   0:06:09.6 John Dues: Yeah. And I think almost immediately the conversation then shifts from learning whether the idea is working to confirming what everyone hopes will happen. I think that might be the most dangerous moment in an organization. And so the purpose that I'm talking about, testing on a small scale, is not actually to verify the idea. The purpose is to learn whether the idea survives contact with reality. A good scientist, for example, their first step when they have a hypothesis is try to falsify it. And I feel like if it was ever taught to education or business leaders, that idea has been completely lost to history. And maybe even in some respects in the science world too, that falsification principle is sort of... That's the first step when you're testing an idea. That is not what I've experienced as an educator. I don't know if you've had that same experience in the business world.   0:07:21.9 Andrew Stotz: Yep, yep. I'm just thinking about that quote about no plan survives first contact with the enemy. I know von Clausewitz said it. There was another guy that said it, I think, before him, but it's just so, so true.   0:07:41.2 John Dues: Yeah. And I think this other way of thinking that I'm talking about is so counter to how most organizations operate. Once that solution is selected, whatever it is, the focus completely shifts to implementation and adoption. But the thing is, improvement, at its most fundamental level, it's a learning process. It's not an implementation process. And so... So often we're asking, how do we roll this thing out? I think a good leader, what they're gonna ask, is how can we learn more about this idea as quickly as possible? Right? This other way of thinking, this small testing, it reduces risk, generates feedback, reveals obstacles that you're blind to initially. But most importantly, it creates knowledge, like real working knowledge in your system, in the context where this idea is eventually... When it does roll out system-wide, where it's gonna have to work. And the thing is, is if it works at that small level, you can expand it. If it fails, you can cut your losses when not much has been lost in the way of time, resources, that type of thing. But either way, the organization is gonna learn from that small test...   0:09:09.2 Andrew Stotz: I found it, by the way.   0:09:10.6 John Dues: Oh, go ahead.   0:09:11.9 Andrew Stotz: Helmuth von Moltke the Elder, a Prussian field marshal and military strategist. The closest translation was, "No plan of operations extends with certainty beyond the first encounter with the enemy's main strength." Or summarized as, "No plan survives first contact with the enemy." So it wasn't Mike Tyson who said it first when he said, "Everybody has a plan until you get punched in the face."   0:09:45.3 John Dues: Yeah, right, same idea. I think the Prussians had quite a bit of revolutionary ideas coming out of their military prowess. I think the organizational structure maybe came even from Prussian military hierarchies and stuff like that.   0:09:54.0 Andrew Stotz: Definitely.   0:10:02.8 John Dues: Yeah, but I think, going back to my original sort of statement about which leaders get branded as outstanding or great or leaders to pay attention to, is those large initiatives attract attention, right? And we tend to celebrate those leaders with bold visions or these big plans, sweeping announcements. They're decisive and courageous because when you make those pronouncements, it appears as if they know exactly where the organization could go next or should go next. I think the problem here is that confidence can so easily be mistaken for knowledge. And often, especially in the world that I live in, not just schools but urban schools, the average superintendent is only in their seat for three or so years. Some a little more, some, a lot, a lot less. And so by the time you find out whether the thing worked or didn't, the person's gone. They're on to the next thing, and no one remembers what exactly they promised to do when they got here three years ago...   0:11:18.7 Andrew Stotz: He was really good. "I liked him. He was nice. I thought he had some good ideas."   0:11:21.5 John Dues: Right, right.   0:11:24.4 Andrew Stotz: "Who's our new boss now?"   0:11:27.4 John Dues: Yeah. And so they get this recognition for these big announcements, and it's before any evidence exists that this thing works, right? And so meanwhile, there's these other leaders who I think deserve more attention, are frequently doing something that's much less visible. And what they're doing is building a system that learns.   0:11:40.2 Andrew Stotz: Mm.   0:11:53.1 John Dues: And so instead of asking people to just trust their ideas, they're really thinking about ways to design tests of those ideas. So they're not really trying to prove themselves right like this first camp of leaders is. What they're trying to do is discover where they might be wrong. And that's just not as flashy. It just doesn't garner the same type of attention as that first type of leader. But I think if we really want to improve organizations, schools in my case, or businesses in your case, the thing is, if you're really gonna improve, it depends on actual knowledge, not just enthusiasm, not just charisma. When I think about a promising idea, that's not the same thing as a good idea. And a good idea, even a good idea, is not the same thing as an idea that works in your system, right? And so what we're trying to do is learn, learn, test, not confirm, learn what actually happens when we put something to the test in our system.   0:13:04.7 Andrew Stotz: It makes me think about what I mentioned to you before we turned on the recording, which is that I've been starting to do PDSAs with my accounting and inventory team. Every month I go and sit down with them after they've closed the books, and I've designed a simple format for them. And the way I've explained it to them is that imagine that you want to lose weight, and you think, okay, there's three things I read on the internet: get good quality sleep, eat less carbohydrates, and walk every day. If we do all three of those things, we're probably gonna lose weight. And as an individual, that may be good enough. But if we do them separately, we'll actually acquire knowledge as to which one has the biggest impact. Now, it gets even more difficult because if you do them consecutively, it's harder to make an impact as you start to lose weight. But the point is, is that... And the reason why it's important is because we need to think about how we as an organization are acquiring knowledge. And so I've got a golden three-ring binder, and each of the PDSAs we put in there, and then we're starting to collect them. Once a month, our impact that we're expecting from that PDSA may take six months to occur, but we're revisiting and discussing and deciding, do we continue with this or do we improve it? And we just have two things that we're focusing on, the accounts receivable and also reducing the amount of inventory that we have in the business. And those two things, the beauty of doing PDSA with accounting is that it's a repetitive cycle. Marketing's not a repetitive cycle. Sales, not necessarily a repetitive production, but accounting is the same thing over and over again. So what a great opportunity to improve.   0:15:10.8 John Dues: Yeah, and that's really interesting because a lot of times financial or accounting functions in businesses sort of get left out of the improvement equation. And that's a big mistake, I think, because especially if those people are sort of left to their own devices and the sole focus is on the bottom line, right? And so you could cut cost in an area and actually cause the business, obviously, great harm if you don't have the full picture in mind. So I think that's a great...   0:15:44.0 Andrew Stotz: And that's a whole another area of misusing finance. But the point that I'm thinking about as I'm going through this, because I was thinking about where is the best place to really start strong implementation of PDSA, and my conclusion is accounting. Because accounting is not even like finance saying, "Oh, we need to hit this target" or something. They're just cranking through a process over and over again. And I told my accounting team, I said, because it's a pretty big team of people in both accounting and inventory, I said, "We're gonna work on this for 12 months until we've got the format, the structure, everybody understands it, we have it all translated into Thai from English so it's very clear." I said, "And then you guys are gonna then teach the rest of the organization how do we do PDSA."   0:16:34.0 John Dues: The accountants are, huh?   0:16:36.1 Andrew Stotz: Which is pretty exciting.   0:16:38.4 John Dues: What's... How are they receiving it?   0:16:40.8 Andrew Stotz: It's confusing. It's hard. They're thinking about things and writing stuff down. The first few ones, they realize they didn't really make it that clear, so it's a struggle. And I can say for myself, being an expert in this area, that bringing it to them in a simple way, not easy. And it's also easy to abandon. And I suspect that many employees would think, "Okay, this is the next initiative," versus something that I'm just gonna, every single month, review, work with them on, and keep improving. And then we want to build that competency to understand what works. Because if we can test things one at a time, they also can see how you really got to narrow it down.   0:17:30.8 John Dues: Yeah, that's a great application of continual improvement where you're learning by doing. There's no better way. It's gonna feel clumsy at the start, the first few cycles that you go through. But I think once people see it's not a test, it's not an evaluation especially, it truly is a learning process that can have a big impact on whatever the problems in your area are. That's what I've found. After people go through this a few times, and you make the predictions, and people think they're gonna get judged on their predictions, or the predictions are gonna be wrong, especially at the start, I've continually had to tell people, "No, you're not failing. Yes, your prediction may have been off quite a bit, but that's in the first cycle." We do this a few times, and you're gonna get your sort of understanding of reality and that gap is gonna get closer and closer as you run those cycles.   0:18:28.5 Andrew Stotz: Yeah, and I've been teaching more and more on corporate strategy, and I've identified what I call 11 Ways to Win, how great companies win. And so I've kind of tried to narrow it down to what I think are the core ways that companies win. And one of them is know-how. And Toyota is a good example.   0:18:40.2 John Dues: Yeah.   0:18:52.0 Andrew Stotz: And part of the question for know-how is, does this company have a method of acquiring knowledge? Because know-how can't just be, "We got a couple really smart guys," because when they leave, that competitive advantage is gone.   0:19:00.4 John Dues: Yeah.   0:19:08.8 Andrew Stotz: And that's where the process of how do we acquire knowledge, this idea of narrowing it down as you're talking about, yeah, exciting.   0:19:19.8 John Dues: Yeah, that is exciting. And the PDSA is a great, I think, technique to use to introduce people to continual improvement methods. Because I think after you've gone through it a few times, it becomes pretty intuitive pretty quickly. And it basically combines all the elements that Deming taught into a single sort of learning process. You get the psychology in there, the systems thinking is in there, understanding variation, obviously the theory of knowledge, the PDSA is core to that. So you get all four components right there with the PDSA.   0:19:55.1 Andrew Stotz: Well, shall we wrap this up? What do you want to leave people with?   0:20:13.3 John Dues: Yeah, I think one thing I was gonna say right before the wrap-up was one of the areas that we're trying to do this actually in is actually strategic planning, which is a broad area of an organization that's sort of comprehensive. But we've, I think, tried to incorporate that same sort of PDSA thinking into our strategic planning process. Because schools, like any organization, they're dynamic and the conditions are unpredictable, especially over an extended period of time. And so what we're thinking through is how do you have sort of this combination of a long-term constancy of purpose, because you have to have that, what's our long-term purpose, our long-term aim? But then how do we also continually adapt? And we've tried to build both of those things into our strategic plan. So I think that's sort of a unique approach, a unique way of thinking, even down to the fact that the strategic plan document itself, what we used to do is the culmination would be this color spiral-bound document that looked really, really nice when the consultant would hand it off to you at the end of the process. Now we're doing this all internally, and the strategic plan is in a Google Doc, and it is literally continually updated as we learn through the various tests that we're running over the three-year period. So it's more like a management system than a static document. So even a thing like a strategic plan, which of course there are components that we have locked in for the three-year period, these are some long-term priorities, but there are some annual and quarterly things that we're updating all the time based on what's actually happening on the ground and what the data is telling us. So you kind of have to sort of do a hybrid of both those things in certain areas of your organization, I think. And I think the most important thing is that we're creating a system that's capable of generating knowledge that we're learning over time, all while focused on a sort of clear long-term aim. I think that's kind of the key thing. So...   0:22:15.2 Andrew Stotz: Excellent. I don't think I can add anything to that. So 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 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 that "people are entitled to joy in work."

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.