“There is not a
day I don’t think about what Dr. Deming meant to us. Deming is the core of our
management.” - Shoichiro Toyoda
According to W. Edwards Deming, the first thing he did when
meeting with Japanese business leaders in 1950 was draw a diagram of a business
as a system on the board (shown below from Out of the Crisis). It was a simple diagram – almost too simple
for many to understand its profound significance. So, what is it about this diagram that
literally changed the world and helped some organizations develop competitive
advantages that they were able to sustain for many years?
At its most basic level, the objective of the diagram is to
show that every business is a system and needs to be managed as such. When most people hear this, they nod their
heads in agreement as if it is nothing new.
After looking at the way many organizations are run, however, it becomes
obvious that the concept is still not well understood.
When viewing a business as a system, it becomes clearer which
common business practices actually interfere with long-term success. In fact, the more one learns about systems
thinking, the more obvious it becomes that the chance of achieving any level of
long-term success without it is very small.
Every System Must
Have a Clear Purpose
Every business exists to achieve an aim and uses a series of
handoffs, processes, and subsystems to achieve that aim. Sounds simple enough but in many – possibly
even most – companies, this is forgotten or never truly appreciated. In far too many organizations, the aim is not
clear, not constant, or too heavily focused on monetary gains. Without a clearly stated and unchanging
purpose that is focused on value and meaningful to everyone, people will define
it on their own, leading to conflicts, waste, and significant losses. Deming went as far as to say that without a
purpose, there is no system.
I consider the aim to be comprised of the mission (why the
organization exists) and vision (where it is headed). In practice, this means that the organization
must stay true to its mission while assuring all targets, objectives, and
activities support achieving the vision.
In the most advanced lean thinking organizations, this is much more
obvious than in other companies.
The Interactions Must
be Clear and Continually Improve
In addition to assuring the aim is clear to everyone in the
organization, the interactions between each person and team needs to be clear
and continually improved. Organizations operate
in a highly complex manner and gaining an understanding of the interactions and
how they create value for the customer is a difficult but necessary task.
A critical point about systems is that every person in the
organization must understand how the work they do contributes to the aim. This means, for example, that a Maintenance
Technician understands his or her role is to assure machines are capable of
producing parts of the right quality when needed. To do that requires high reliability, fast
turnaround for maintenance and repairs, and helping the machinists understand
how to perform routine maintenance activities quickly and effectively. Managers have the responsibility to help team
members understand their work to this level of detail, including developing an understanding
of whom they support in the overall system.
Standards must be established to clarify the work and the interactions
and clearly communicate to people what is needed to assure materials and
information move through the system to produce value consistently. Whenever the standards are not met,
problem-solving must be done to understand why and to make corrections.
Leaders Must
Understand the Level of Complexity
Appreciating systems goes beyond understanding the
interactions that take place throughout the organization. It includes the understanding that the
results of actions are not always simple and easy to determine. For example, forcing the supply chain team to
reduce the cost of incoming materials can result in increasing overall costs
for the company, even though logic would dictate otherwise.
Organizations are complex, and the larger the organization,
the more complex it becomes to understand the effect of a decision or
action. Large-scale changes can, and
often do, have damaging effects that are difficult to predict beforehand, and are
not easy to understand afterwards. All changes must be accompanied by an expectation of the effect on the organization, and results must be continually checked against the expectations to drive learning and help improve understanding of the system.
Fragmented Thinking
vs Systems Thinking
The more one develops an understanding of systems thinking,
the clearer it becomes that many commonly accepted business practices hamper,
rather than help, improved performance. An
example is the heavy focus placed on individual performance by most
organizations. Systems thinking naturally puts the accountability for
performance on the system to a much greater extent than on the individual. Deming used to say that 94% of the problems a
company faces come from the system (and are therefore management’s
responsibility) and 6% are related to the people in the system. The time and emphasis generally put into a
typical performance review system, however, shows that many of us believe the exact
opposite. We rate, rank, and hold people
across the organization responsible for performance in a system that is most
likely flawed. In other words, rather
than focus our efforts on improving the system when performance is below
expectations, we assume that putting pressure on the individual will improve results,
even though the person may have little or no authority to do anything other
than try harder, go around the system, or focus on making it look like
improvement is occurring whether it actually is.
When traditional performance reviews are combined with the
process of setting objectives, the result is often optimization of one team or
individual rather than the system or the organization’s overall aim. For example, a finance team that focuses on
improving the closing process by requiring extra work from the operations team
could result in taking time away from producing products or fixing problems and,
although the books are closed faster each month, overall performance may suffer.
The typical organization chart is another example that shows
the popularity of fragmented thinking. The
most commonly used layout for an organization chart shows little more than who has
power. Using a chart that is organized
by the system (e.g., names and titles on a system diagram), however, would show
where people fit in the value stream, as well as the relationships between internal
customers and suppliers. It would be
much more valuable to helping people understanding their jobs than a chart that
shows who the boss of whom.
These are simple examples that demonstrate the destructive
effects of leaders who do not understand how systems work. When the system is not understood and
actively managed, priorities are unclear, causing continual conflict between
people and teams, and effectively destroying the system.
Managers are
Responsible to Create and Improve the System
When leaders come to the realization that creating,
managing, and improving the system is their responsibility, the organization will
begin to transform. The focus moves to the
most important parts of the organization and people start truly working
together, rather than against each other, to improve performance.
Although appreciation for a system is only one of the four
elements of what Deming referred to as his System of Profound Knowledge, it is
something that helps provide context for the others – theory of knowledge,
knowledge of variation, and psychology – and the understanding that they must
all be present and work together to drive transformation.
