The Harmful Effects of Key Performance Indicators (KPIs)

 Data represents raw numbers and information represents the what, when, where, etc. of something. Knowledge requires looking inward at how something works. Understanding requires looking outward at a bigger system for an explanation of what lies inward. Wisdom is the ability to utilize these elements. So how do we go from having data to having wisdom? Bill and Andrew talk about tools, techniques, concepts, and strategies.

TRANSCRIPT

0:00:02.8 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we continue our journey into the teachings of Dr. W. Edwards Deming. Today I'm continuing my discussion with Bill Bellows, who has spent 30 years helping people apply. Dr. Deming's idea is to become aware of how their thinking is holding them back from their biggest opportunity. The topic for today is: Tools and Techniques and Concepts and Strategies. Bills, take it away.

 

0:00:30.2 Bill Bellows: Thank you, Andrew. And as we get into number five, I was listening earlier to episode number four, and I just want to start off with a clarification and addition. I shared a quote, "I'd rather know a little less than to know so much that ain't so." Which is the opening quote of The New Economics. Every chapter of The New Economics has a great quote. And that quote is attributed to Josh Billings, who is an author who lived in - the author, humorist in the late 1800s. And I thought that was attributed to Will Rogers. Will Rogers is kind of the Josh Billings of the early 1900s. And Will Rogers quote, which a little similar is, "It isn't what we don't know that gives us trouble. It's what we know that ain't so."

 

0:01:26.8 BB: And to that end, we've been talking about black and white thinking, question number one, shades of gray thinking, question number two. And something I learned from Ed Baker who's a genius who worked at Ford, followed Dr. Deming around the world, a really sweet guy. And one of the first times I met him, he said something about having the ability to realize that the more you know something may be the less that, we're so used to thinking that I know it better and better and better. And where he was coming from my interpretation was, there's a possibility of getting to a point of questioning your understanding, which means your understanding goes backwards. And that's where I think these quotes from Billings and Rogers are so appropriate. Are we willing to let go of dogma? I mean, that's what we were talking about last time. Zero inventory, zero variation, and that's all dogma. And what these two people are talking about is that understanding is relative.

 

0:02:42.1 BB: It's not absolute. And also that it can go backwards. So you could look at what you're knowing and all of a sudden say, "Maybe I'm not as confident." And if I go there and say... I met a really cool guy, it was at Deming's first seminar in the UK, he worked for Ford. And I used to meet him at this annual UK Deming forum. And at the end of the days there we'd go to the pub, and I liked to hang out with him 'cause he is just, he had so much great wisdom. And one of the things he said is that he constantly challenges his understanding, and not just of Deming, but is this, is it, 'cause he found himself really passionate, but he was questioning, he had the ability to step back and question why he thought it was so important. "Am I crazy?" And, I said, "You're not the only one who does that." But I think that's really healthy, that you can step back, read other people's stuff. But the ability to keep challenging and I think in the world of continuous improvement, we use that phrase, the ability to question your understanding I think is absolutely important. So anyway, I just want to get that off first.

 

0:04:05.8 AS: It made me think when I teach my finance classes at university, one of the first things I say to my students, is I say, if I'm successful in this class, you'll be less confident when you leave.

 

0:04:18.0 BB: Yes.

 

0:04:19.3 AS: And they just can't understand that at that moment in time. But at the end of the course, they realize that nothing's written in stone and that it is a shifting sands, particularly the stock market. Stock market is just a, as one of my guests on my podcast on investing said, "The stock market is a predator, and it's just constantly evolving ways to take money from you." But the point is that if you think that you've got it licked, then it's your, it may be your time up next. And then the other thing I was thinking about is, does knowledge go backwards or does it just become that we have a different vantage point? And also, what's the motive of learning? In the beginning it was just to gather information. The ability to interpret that information strongly didn't come until you really start to feel better and you have more experience. But then the further you go, it's like playing a piano solo and you go far away from what you learn in the rudiments. Does that mean the rudiments are wrong? No, you're just coming at it from a very different angle now.

 

0:05:32.1 BB: Well, let me add, and this adds to where we're going. And I've shared my, what I've learned from Dr. Deming. I met him twice and never asked him a question. I learned a whole lot from Russ Akoff, who I asked a lot of questions, Dr. Taguchi I asked a lot of questions. And one of the things I share in all my classes that I learned from Russ, and I find... I use the word profound. It's a model he refers to as the D-I-K-U-W model. Others have used four letters. I like Russ's model, D-I-K-U-W. So what is D? "D" is data. And what is data? Data are temperatures, pressures, sales numbers. Those are, that's data. "I" is information. And as Russ would say, information is what a newspaper reporter writes. It's what, where, when, how, and a car accident occurred at this time. That's information. And what's neat is what Dr. Deming said was the dictionary is filled with information.

 

0:06:52.4 BB: But the "K" is knowledge. And Russ uses K the same way Deming uses knowledge - as in Theory of Knowledge - which is, what is my theory for how this thing works?

 

0:07:06.8 BB: If I tweak this, then this happens. So the ability to understand causes and effects, that's knowledge. I take something apart and I understand the springs and this turns this, and I would turn it clockwise and boom, boom, boom. That's knowledge. Understanding, the "U," comes from stepping back. And an example I used with my students is, a number of years ago, I took apart our washing machine, 'cause I heard the bearing is starting to hum. And I thought, well, given the experience in corporations, I can either continue to let this hum and at one point it breaks, in which case I am where I am, or I can be on top of it and get ahead of it. And that's what I decided to do. So I went online, found a couple websites, and got great instructions, took the whole thing apart, and was able to get back together. Taking it apart, putting it back together, looking at how all these things work together, is that I gained great knowledge. But what Russ would say is, understanding how the washing machine works doesn't tell me why it's sized for a family of four.

 

0:08:27.5 BB: Russ would say, taking an automobile apart and putting it back together doesn't tell you why it's designed for four passengers and why the driver sits on the left. So understanding is when you look outward at the greater system, and Russ also refers to that as synthesis, as opposed to analysis is when we bore in. And he said... And what's really also, we'll get into this. I mean this, these terms will come up in this conversation later, so it works out well to throw it in now. So there's data, information, knowledge. Okay, fine. Again, understanding is: we step back and say, why is the car, why does the car have four passengers? And that's also what Russ calls synthesis - which is when we look outward at the containing system. And analysis is when we go inward. So there's analysis inward, which is where the knowledge piece comes in, stepping back.

 

0:09:28.9 BB: And then the "W" piece is wisdom, which is, what do you do with all this stuff? So I'm sitting in a staff meeting at Rocketdyne, and they're talking about the results of the latest survey. And every director in the room has got a solution on how to improve their issues, and every solution involves some awards program. And I'm listening to one person after another, after another, after another. And this is a, I knew all these people, but I was recently assigned to this vice president, and I was all set after the 12th or 13th of them said, "and I'm gonna implement an award system." And I was all set to say, “for the record...” but I bit my tongue, and it's a good thing I did, because immediately after the meeting was the monthly awards and recognition luncheon for the buyer. But I say that that's the wisdom piece. The wisdom piece was, I was lucky. I just, but the wisdom piece is knowing, when do I use this knowledge and when do I just shut up?

 

0:10:45.6 AS: That's true isn't it?

 

0:10:47.5 BB: Yeah. And I would say I was, I was lucky. But still, with what we're sharing with people, it's one thing to be aware of it, but you have to pick your battles. You have to pick your opportunities, and you can't be a bull in a China shop. All right. So back to tools and techniques.

 

0:11:08.6 AS: Okay. But wait, I want to go back through this just to highlight it because I think it's a good... I teach students how to value companies, and I've been doing it for 30 years. So, I would argue I'm close to the wisdom part, further away from the data part. But when I bring students in the class, the first thing they do is, hey, I got data, I got data, I got these charts, look at this, look at this. But then I say, okay, so what, what, tell me more. And then they say, then they get into the information. Okay, what, when, how, where, but they still don't have an interpretation of what this means. And then we get to knowledge where they start to ask more questions: okay, how does this all work together?

 

0:11:49.2 AS: And then as you get better and better in what you're doing, you get an understanding of how it all works together. You're not just valuing one stock, you're looking at that stock relative to the overall market. And then when you get to wisdom in the valuation and in the finance world, you've now seen many different parts of this overall system. And when you come back and look at the idea of: how am I valuing this particular stock? So many more elements come into that decision. What's the FED doing? What's happening in that country? What's happening in demand? If it's a car company, like I've just valued Toyota, what's happening? And we going into recession? Has that been put into the...is that already in the price? So Data, Information, Knowledge, Understanding, Wisdom. Alright, great. Let's continue.

 

0:12:35.2 BB: Oh yeah. And then again, we'll see where it shows up. So first one, talk about tools and techniques. And when I presented my classes I said there's tools and techniques, and then there's concepts and strategies. So what are tools? Tools are the implements that we use to complete tasks. So in the backyard I've got an axe, I've got our hammers, screwdrivers, pliers, those are tools. So is my cell phone, it's a tool. The computer, the cameras these are tools. The microphone, these are tools. Techniques are the methods of how they're to be employed. So when I get ready for the podcast, I turn off anything that would just come on board and distract us, things like that, close the door. So the technique is: what is the method by which I use the ax, use the screwdriver? Okay. Now we get to concepts and strategies.

 

0:13:29.8 BB: So concepts represent abstract ideas such as the theory of System of Profound Knowledge, as well as fundamental building blocks of thoughts and beliefs. So, those are concepts. Again, concepts represent abstract ideas as well as fundamental building blocks of thoughts and beliefs. All right. So I couple that with strategies. Strategies represent a plan of action or a policy designed to achieve a major overall aim guided by a concept. So if I want to implement Lean, implement Six Sigma. So Six Sigma and Lean are concepts, and then we have a strategy to implement - training people, whatever. And I throw those out because what I find is well, let me even back up in terms of another model I want to share with our audience. And I'm aware that there are people listening to this if they're joining online on the Deming Institute webpage.

 

0:14:32.1 BB: And then for our viewers that are watching us, Andrew, through DemingNext, then they can see us. They have a video. But I want to, as much as we cannot rely on PowerPoint slides that the listeners can't listen to. So I want people to imagine an input-output diagram, a rectangle where you've got inputs coming in one side, and what are the inputs? The raw materials used to create something. It could be literally materials or information or students as inputs into an education system. And then the output is whatever it is you're trying to achieve. So the left hand side is the inputs coming in the outputs are going out the right hand side. Well, what I also think about is imagine coming down from the top are concepts and strategies, and coming up from the bottom are tools and techniques. And the idea is that the tools and techniques are used to manipulate, convert these things, these inputs through concepts and strategies into the output. And so, tools and techniques offer us speed, the ability to dig the hole with a shovel as opposed to my hand. The ability to contact thousands of people in email as opposed to one at a time. Tools and techniques offer what Akoff would call efficiency, doing things well. So efficiency is about lowering cost, improving speed.

 

0:16:14.7 BB: And so, again, Akoff would talk, again another concept from Akoff is differentiating efficiency from effectiveness. And I don't think we've talked about this in the past, but when I first heard Russ explain this I thought, "holy cow, I use the words efficient and effective interchangeably." If I was writing something I'd talk about, let's do it efficiently then over here, not to be redundant, and I'd say, we're gonna be effective. And in Russ's work, and he is incredibly eloquent, and he says, efficiency is doing things well, effectiveness is doing the right thing. And he'd say that the better you do the wrong thing the wronger you become. And the idea being effectiveness is asking: "why are we doing this in the first place?" And I say that because concepts and strategies are about effectiveness, an overall plan of action.

 

0:17:17.4 BB: And my concern is we get hung up on tools and techniques wanting to do things faster and cheaper. Again what Russ would say is the righter you do the wrong thing the wronger you become, because we're not challenging that. Reducing cost of something in isolation may make the whole thing worse, and we get all hung up on driving cost of zero, cycle time to zero, variation to zero, defects to zero, not understanding the greater system. So again back to this model is the raw materials, the inputs and come in the left hand side, they're acted upon by tools and techniques, but the tools and techniques are guided by concepts and strategies and that gives us the output. Well the...

 

0:18:04.8 AS: Go ahead.

 

0:18:06.5 BB: Go ahead Andrew.

 

0:18:07.5 AS: I was just gonna say, I was gonna put it in the context that in my coffee factory, the main input is raw coffee beans. And then the process is roasting and packaging, and then a finished product comes out the other end. And if I think about the tools and techniques, we use thermometers, we use roasting equipment, we use coolers and we have techniques that we've worked on that we have certain recipes, certain dump times, so these are the tools and techniques. And then the concepts and strategies. Well, as far as concepts are concerned, part of it is making sure that we're making the right product. We have a lot of competitors that come in the coffee business and they're absolute coffee lovers, and they start up little roasting factories to compete with us, but what they don't realize is that we're not roasting for the best tasting coffee, we're roasting for the best match with what the client wants from a taste and a cost perspective. And it may have nothing to do with what you and I appreciate in a nice espresso. And so when I think about the concepts, it's like really understanding where are we going with what we're doing with this.

 

0:19:28.0 BB: Yes.

 

0:19:28.4 AS: And then this, the strategy is kind of, in some ways I would say it's kind of the overall, how does this fit into our overall strategy of the service that we're bringing to our clients. The machines, the coffee, the coffee doesn't brew itself. It has to be brewed in equipment. So we have to optimize for that equipment. Then we have to have service technicians that train. So there's a strategy of kind of how we implement that overall thing. I'm just trying to apply what you've said about tools and techniques and concepts and strategies.

 

0:19:56.9 BB: Well, that's brilliant. And what is else is cool that I've never shared with you is our... One is our, your undergraduate degree and our daughter's undergraduate degree are both from Cal State Long Beach.

 

0:20:08.8 AS: Interesting.

 

0:20:10.1 BB: And she went and studied - a few changes in direction - and came out with a degree in English. She wanted to be an English teacher. And then upon graduation decided it's not what she wanted to do. But she spent one year in Europe and somehow got turned on to coffee. And her senior year she was working in these coffee shops making lattes and espressos. And she is a coffee snob, let me tell you. She turned me on to the difference between, let's just say Starbucks Coffee and Intelligentsia Coffee. And it's never been the same. And she would say 'cause I put, cream or half and half and that she says, dad, she said, “Coffee lovers, if you have to put something in it, then you're not a coffee lover.”

 

0:21:17.1 BB: But she worked in the coffee business and just an incredible mind for exactly what you're talking about. And then decided to go back into education.

 

0:21:30.2 AS: Yeah. Whenever I go out on a dinner, since I don't drink wine and they pour me a glass of wine, I always pour in about, a little about a quarter of a cup of milk into my wine just to freak 'em out. And think, now who would ever do that with coffee anyways.

 

0:21:46.4 BB: But no, but those are great examples. And they... But the other thing I wanna point out is, I've seen, and I'm sure you've seen, people look at Deming's work and they say, well, he uses control charts and so do the Six Sigma people. Hey both of them talk about design of experiments and both of them talk about continuous improvement. Isn't it all the same? And when I started to explain to people is to say, don't confuse tools and techniques with concepts and strategies. And it's really powerful to differentiate. And I point out to people, I'm not against tools and techniques, but I shared in the past that, when I joined Rocketdyne in 1990, I got involved in problem solving and working on things and doing training.

 

0:22:40.7 BB: And in hindsight, most of my focus was tools and techniques. Was showing them how to go in there and apply this and apply this. And that was kind of in the community where I was being mentored by these people outside the company. That's the path I was on was, looking at, how I was being trained by the people doing the training and that it made sense. But it wasn't until I came across Dr. Deming's work, then I said, the tools and techniques needed to be guided, and without guiding them properly, we're gonna keep solving problem, solving problem, solving problem. So I'm not against tools and techniques, I love tools and techniques. And I spent the first couple of years and I was all about tools and techniques, and then I got enamored with concepts and strategies - and see that's where the action is. And then, but when it comes to the rubber meeting the road, you're gonna need tools and techniques. And makes you may have an incredible concept, but at the end of the day, you have to bake the coffee beans.

 

0:23:53.1 AS: Yep. And you and I were talking before we turned on the recorder, about how I've had a little back and forth on LinkedIn with someone who posted something about KPIs. And it was all about how... And it was actually, I think it was a company that has KPI training and all that. But I...

 

0:24:10.9 BB: And again, for our audience, KPIs are a key process... Key performance indicators.

 

0:24:14.7 AS: Performance, key performance indicators. Yeah. And it's such a common thing now, I would say almost every business has them. And the KPI concept is that, every business, every division, every individual should have some key performance indicators of whether they're doing their job right. And that is a measure that we can use to try to understand and manage people. And so they, I basically chimed in that KPIs...I would challenge anybody that KPIs probably cause more damage than they solve. And that's a bit offensive, because, people are really relying on KPIs right now. And then one of the common comebacks to that is, yeah, because people weren't trained in them, and therefore, unless they're really carefully thought out, they don't work or it's harder. But what I was trying to explain is it's beyond that. You can't fairly design KPIs for individuals. And I said, and the ultimate way that you can understand this, and this is good lesson for the listeners, is just go to your employees, not your managers who are all talking, they're having their KPI chat rooms or whatever, but go to your employees and ask them, just ask them a simple question.

 

0:25:33.5 AS: Do KPIs add more, do they add value or do they detract from value of this business? However you word it. And I've done surveys like that and I found that about 80% of the people have a negative perception of KPIs. And there's a lot of different reasons. But the biggest reason based upon what you're talking about is that most of the people that are doing KPIs, they only understand the tools and techniques. They're not thinking about the concepts and strategies and understanding the motivations of individuals, the motivations of people to cheat, the motivations of how do you measure something, how do you know that I should be calling five customers in the mornings, versus 15 versus one, and have a long conversation with that one? There's just... It's nothing in the world is that objective. And you can't get there until you get to concepts and strategies.

 

0:26:23.8 BB: What you've just said brings a number of things to mind. One is I went to meet one of the vice president at Rocketdyne once, and I had a conversation with him on a particular topic. And he was new to being the VP. And so I went in and I said, I need your help, blah, blah, blah, blah, blah. And so we got that one done with that and that went really well. He says, "Hey let me ask you a question. Help me out here." He said - 'cause at that time, at the beginning of the year, KPIs were rolled out, right? And at the highest level, the next level. And then at the end of the quarter, how we doing? At the end of the next quarter, how we doing? So he says, so he is a VP, he's got a dozen of directors reporting to him. And he says... I've asked him to put together these goals. And they weren't called KPIs, but they were KPIs. And I forget what they were exactly called.

 

0:27:29.7 BB: And he says, "I know they're capable of so much more." I said, "What do you mean?" He says, it's like he didn't use the word sandbagging, but they were sandbagging. He said, "they're kind of underestimating what they're capable of." He said, "What do you... " And he was really sincere. He was a really, really nice guy. He says, so "What do you think's going on?" I said, oh, I said, "I'll tell you what's going on." I said, "You're holding them individually accountable and of course they're holding back because you expect the numbers to be met." And I said, under those circumstances, you'd be a fool to stretch 'cause he says, there's so much more capability and these people and they're holding back. And I said, "They're holding back because when you hold their feet to the fire, they need a way out." So their way out is to underestimate. And then if they go beyond that, then they look good. But instead of, but he was baffled that they were underestimating what they could do, 'cause he knew these people as peers. He used to be one of them now he is their boss. And so again, it was a really sincere question, but he was really puzzled. And that's exactly what you're, that's part of what we're talking about.

 

0:28:55.7 AS: And to come back to that, just the idea there is that majority of people actually intuitively know that they only have so much control over the situation that they're operating within a system. And so they'd be a fool to go out and say a big number because they can't control the other departments doing whatever needs to be done to get to their goal. I have a friend of mine that went to work for Microsoft from a small company and went to Microsoft and he had a big, big contract, multi-million dollar contract he was trying to get in Dubai, and he asked the guy in Redmond if he'd be willing to fly out - to go. He said, "I'd love to go, but I gotta hit my KPI to get my bonus and I've got two weeks to get there, so I'm sorry I can't." And so what was a $10 or $20 million contract in Dubai had to be let go of because that guy just couldn't support it. He had to focus on what could have been a $300,000 KPI. So you can't think about the system when you are incentivizing people individually. And that's where...

 

0:29:56.3 BB: Yeah, and we'll come back to that. But I'll throw out an example. I have a neighbor who once upon a time worked for Xerox and field service, and he was so cool 'cause we started to compare notes: what do I do, what do you do, and all. And I never forget the one thing he said, he said, there wasn't a KPI that was flowed down that they couldn't meet.

 

0:30:17.2 BB: And because at the end of the day they had the ability to play the game. And one story a little bit different, but an example of how the game is played. There are some people, years ago writing a book about companies that are incredibly creative, and this is a real story. So they went out and they came across a company where there was on average 20 suggestions per employee being submitted every week. Gotta go visit this place! So they go in and then we read the reports and they're like, "Yeah so how do you do this? How do you, it's like 20 ideas per person per week. How do you do this?"

 

0:30:58.7 BB: The guy pulls out of his pocket a bunch of three by five cards, again, this is back in the '80s or '90s. And he says well, as a matter of fact, he said, "Yeah, I come up with an idea. I write it down. I keep it in my pocket, on Friday I have to deliver 20." And the guy says, "Every week you deliver 20? I just like, how do you keep doing this?" He says, well, like, yes and no. He said, "So in my pocket, in this one here, you see this idea here?" He says, "Yeah, well this was Andrew's idea last week." And this one here Joe submitted this three weeks ago. So he, I gave him a couple of mine and so I'm gonna submit 20 but... And they aren't all mine." And I thought, that's exactly what we're talking about. They're gonna make the numbers. Another thing I've seen, which I don't think is not uncharacteristic, is people estimating how long something's gonna take, how many hours are required, resources required? And then they end up using twice as much resources, right? And then they go back and change the estimate to the actual they used. And I was like, holy cow.

 

0:32:18.7 BB: But what we both know is the system is causing people, as this VP, I was trying to convey to the VP, if at the end of the day you are solely held accountable as the willing worker, then you are going to go to great lengths to protect yourself by padding the budget, overestimating the resources you need, under... And you're gonna play these games, 'cause what's missing from everything is unique to the Deming philosophy, I believe over Lean Six Sigma, Operational Excellence, Six Sigma by itself, Lean by itself is... An understanding of integration and how things work as a system. Now what I've also seen is you may find the word 'System' used in those concepts in the deployment strategies, but those... That language, if you pay attention to how the focus is about question one. Does something meet requirements? We wanna lower the cost of this. We wanna drive this cost to zero, we wanna eliminate this inventory.

 

0:33:39.3 AS: To me, those are examples of looking at something in isolation. So even though we use the word “system” you can hear the isolationist thinking. And I was... I had an ear ache the other day, and so actually when we were on vacation, my left ear was bugging me. So I got back and waited and waited and said, okay, I'm gonna go and take a look at it...Gotta get it taken, get them to take a look at it. And so I went in and to see my doctor and she wasn't available. So I met a new guy and, so he says, "What do you do?" And I said, I consult and I do online classes. I have these podcasts with Andrew. And he said, what it's about? And I said, well... I said, the way organizations are run, I said, they give the right wrist, a goal for Pulse, and they give the left wrist a different goal for Pulse. So over here I want, 45 beats per minute. And over here, this is what I want.

 

0:34:42.9 BB: And that's this KPI stuff. And there's not an understanding that as soon as you assign the goal to the right wrist, you've constrained everything else. And that's the concept behind Deming's work that I so love that, with his work I understand the fallacy of assigning these things over here. Over here we wanna see zero inventory, we wanna see this, we wanna see this, we wanna see this. And you can't... It doesn't work because they're all connected.

 

0:35:16.8 AS: Well, I was thinking about, I used to have a sauna and a cold, plunge pool place near my house here in Bangkok, and I would love to go into the sauna and get really hot. Then I had a hot bath. So I'd get super hot and then I would get out of that, I'd go into the cold and then you get super cold and obviously your body's going through very different situations when you're in there. But then, being the analyst, I started asking myself, I wonder what would happen if I put my right foot down here into the hot, extremely hot water. Okay, what signal is that sending up to my brain? And I put my left foot in the extremely cold water? And you could just imagine what your body and your brain is trying to figure out how to react to that. And that's what you're saying about the pulse on one hand versus the other. I feel like I wanna wrap this up because we've gone through so much stuff, and is there anything else that you want to talk about before I do a wrap up?

 

0:36:16.8 BB: Well, lemme tell you one other story.

 

0:36:19.5 AS: Yep.

 

0:36:21.3 BB: I was in a meeting number of years ago, at a pretty high level, I was a bystander. I happened to be invited to a pretty high level meeting. And in the room where nine divisions. Each division, there were roughly 300 people in the room representing nine different divisions of the company. We'll just leave it at that. And elsewhere in the company, there's others doing similar things. So I was in a... And part of this big corporation. Then there's others working in parallel. And in the group I am, again, there's nine Presidents with their respective Vice Presidents and down to a director level. And again, I'm just there for whatever reason. And the objective is to improve the stock price of the corporation.

 

0:37:22.8 BB: And because the big consulting companies said that if you reduce return on that... If you improve return on that asset and increase cash flow, then you'll have stock prices like the golden companies. And that's where the company wanted to be. They wanted a huge stock price. So the plan is, for these nine different divisions of the company, to each work on a plan to improve their return on that asset and a cashflow number. Right? So we break it into in the parts, each part's gonna come up with a plan. And so the day begins with: this is the overall concept. The strategy is you nine at the end of the day are gonna go to a conference room. You're gonna outbrief tomorrow morning with your plan and blah, blah, blah. Okay, so now what? So the next presentation is on this concept called, Big Hairy Audacious Goals.

 

0:38:23.9 BB: And so an outside consultant comes in and "don't hold back. Go for gold. Go for gold. Don't hold back. Don't hold back the company's stock price it is dependent upon you!" So again the concept is, we're gonna break it into parts. The strategy is we're gonna go separate directions. This guy comes in and says, "go, go, go. Don't hold back." And we get to the point after that presentation and the number one guy in the room gets up and he says, okay, everybody understand the concept, understand the strategy. You're gonna go to these rooms, get back tomorrow morning with the out brief.

 

0:38:58.9 BB: Okay. And 300 people are standing up. And they're beginning to gather their stuff and before they could leave the room, the number two guy in the room was up on stage, comes up to the microphone and he says, "Ladies and gentlemen, hold, let me get your attention, before you leave the room. Let me just emphasize, let's not sub-optimize." So I shared that later that evening with my wife and she said, "What'd you do?" I said, "I just stood up in the back of the room and yelled, what other effect are you expecting than sub-optimization?" And she says, "You didn't?" I said, "No, I just sat there and watched." That's what we're talking about, Andrew. Every division coming up with their own thing. 'Cause the belief is if they each improve, the overall improves. But the other thing I wanna say is, and we'll talk about this more in the future, is the number two guy in the room, he knows that sub-optimization is a bad thing. So it's like if I called a guy up and I said "Hey An…is this Andrew Stotz? Yeah, Andrew, hey how'd you get…?" "Yeah, who are you?" I said "Andrew, I'm your best friend, and I've got a deal for you. I am selling sub-optimization."

 

0:40:29.7 BB: And you're like, hold on, hold on. That's a no no, no. That all you know is that that's a bad thing. And that's what I thought, is that's dogma. We know that sub-optimization is bad, but they wouldn't know sub-optimization if they bumped into it in a brightly lit room. And so this KPI stuff is the epitome of sub-optimization. It is every department with their own pulse. And what you and I revere about Dr. Deming's work is it's a concept of looking at things of the system, which challenges that. But this advice within the corporation came from McKinsey.

 

0:41:14.5 AS: Of course. Okay.

 

0:41:16.6 BB: So a lot of money was paid for this advice. So it's out there. It's alive and well. And so again, when we're talking about concepts and strategy is - to me, they are the differentiator. Looking at Deming's idea as a concept is an incredible differentiator.

 

0:41:36.6 AS: Okay. So, let's wrap up. First, we talked about the idea that, could knowledge go backwards? Like we were accumulating knowledge and all of a sudden we start to lose...we gain a new perspective and we start to lose confidence in what we're looking at. The second thing we talked about was D-I-K-U-W, data, information, knowledge, understanding, and wisdom. And it's just thinking about maturing also over time as you learn and grow. We talked about tools and techniques and concepts and strategies, and the idea being that tools are the implements that we use to achieve tasks. Techniques are the methods that we're employing. And that tools and techniques are about efficiency, which is about doing things well. And that's different from effectiveness, which is doing the right thing.

 

0:42:29.2 BB: Yes.

 

0:42:29.7 AS: And concepts represent like the abstract ideas, the fundamental building blocks, the thoughts and beliefs to understand how these things all work together. And strategy is ultimately: where are we going and how are we getting there?

 

0:42:46.1 BB: Yes.

 

0:42:47.1 AS: And the point that you've said is what you like about Dr. Deming is that it helps you not to confuse tools and techniques from concepts and strategies, in where Dr. Deming saw something out of what seems like a very innocent tool to the average person. He saw the damage that could be done. And then what you talked about at that last example about the guy that stood up. And everybody's gonna go into their rooms and their departments and then work on this project. And at the end he says, let's not sub-optimize. And the answer from the audience should have been, well then let's sit back down in this room and figure out how we're gonna all work together to get the most out of this system. Because in fact, what we know, just like Dr. Deming taught about a symphony, is that it must be part of this symphony will be sub-optimized, while another part is being optimized to get the optimum output of the system. So to think that you can drive a business 100% on all cylinders and not have an impact on the other, you're actually, it's like holding up someone's pulse on both of their hands and saying, I want a low pulse rate here and here, I want a high pulse rate. It's only one beating heart of that person. Anything you would add?

 

0:44:05.2 BB: No, as I would just say again, the model is we've got the raw materials coming in the left hand side. We've got tools and techniques, which are about efficiency coming from the bottom, coming down from the top, our concepts and strategies, which is effectiveness first, effectiveness sets the path, sets the plan with efficiency, and then we get a credible output. So that's exactly what we're talking about. Again, we're not anti-tools, anti-techniques. What we're talking about is, let's put effectiveness with concepts first.

 

0:44:38.9 AS: Right. And Bill, on behalf of everyone at the Deming Institute, I want to thank you again for this discussion. For listeners, remember to go to deming.org to continue your journey. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming. "People are entitled to joy in work."