Management as Resource Allocation and the Toguchi Loss Function

Many businesses equate "manager" with "leader," excluding potential leaders from across the organization. In this episode, Bill Bellows and host Andrew Stotz talk about leadership in Deming organizations - with a great story about senior "leaders" making a huge error in judgment at a conference of auditors.

TRANSCRIPT

0:00:02.0 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 ideas to become aware of how their thinking is holding them back from their biggest opportunities. The topic for today, episode number 14, is Beyond Management by Extremes. Bill, take it away.

 

0:00:29.7 Bill: Number 14 already, Andrew.

 

0:00:32.0 AS: Incredible.

 

0:00:32.6 Bill: It's a good thing we skipped number 13. That's an unlucky number. [laughter]

 

0:00:37.0 AS: Not in Thailand. It's a lucky number.

 

[laughter]

 

0:00:40.6 Bill: No, we didn't skip number 13. This is 14.

 

0:00:42.1 AS: Yes, we didn't.

 

0:00:43.5 Bill: Alright, so I just enjoy going back and listening to all of our podcasts, once, twice, three times. And then I talk with friends who are listening to them. And so I'd like to start off with some opening comments and then we'll get into tonight's feature, today's feature.

 

0:01:00.9 AS: So let's just, to refresh people's memory, episode 13, which we just previously did, was Integration Excellence, part two.

 

0:01:09.2 Bill: Yes. And that's what we called it. [laughter] So... [laughter] So last week I...

 

When we thought about getting together, but I had the wrong time, and it worked out well in my schedule. Last week, Andrew, I did three presentations. A two-hour lecture for Cal State Northridge, which is part of a master's degree program, where I do a class in quality management. That was Tuesday night. Wednesday morning I did a one-hour presentation with one hour of conversation afterwards with the Chartered Quality Institute, which is kind of like the American Society for Quality in the UK, and this... So this was several hundred people from the UK and also the Caribbean chapter from Trinidad Tobago, Jamaica. And so there's a bunch there. And then on Thursday morning I did a three hour session for a group in Rotterdam, which was really early for me and late afternoon for them.

 

0:02:25.4 Bill: And in all three, I covered similar material for all three groups, which included the trip report that we've done on the ME Versus WE, how did you do on the exam? How did we do? And so it was really neat to present that to the three. And in each case, when I threw out the question, "how did you do on the exam?" And then explained as I did one of our earlier podcasts that if you've got a long list of inputs, which includes - the woman I was talking to and, 'cause I said to her, the question is how did you draw on the exam? What are the inputs? And she said, the inputs are, my energy, my enthusiasm, my commitment that she got stuck. And I said, have other students helped you? And she said, yes, other students have helped you. I said, that's another input.

 

0:03:17.3 Bill: I said, given that input, how many can you see? And she said, oh my gosh. She said, my professor, my parents, my brother. And then all of a sudden there was this long list of inputs that she couldn't see. And so I explained that to the people and then say, "if you've got that long list of inputs and the original question is, how did you do on the exam? Does that long list of inputs change the question or are you okay with that question?" And what I look for is, and what we've talked about is, does the whole idea, how did we do on the exam jump out at you? No, it doesn't jump out. So, in each case, I said, here's the situation, might you reframe the question? And in all three situations, most of them that I asked said, there's essentially nothing wrong with the question. And if they did restate the question, they kept the "you," "do you think you could have done better?" Do you think... And that's what's so cool is that they just hold onto the you. Well, and for one of the groups it came a... It was kind of like what I was saying was semantics.

 

0:04:32.6 Bill: And I said this is not semantics. I said, there's a big difference between somebody, you know referring to our kids as my son and my daughter and our son and our daughter. And this, "my," is singular ownership, "our" is joint ownership. And so what I was trying to explain is that, saying “How did you do versus how did we do?” is the difference between being an observer of your learning if you were the student, Andrew and a participant. Those are not... Those are enormous differences. It's not, just, it's not just a simple change in pronouns. And so when I... And when I got to next, I was at a meeting years ago, I was at the annual, you ready Andrew? I was at Boeing's Annual Auditor's Conference.

 

0:05:40.5 AS: Sounds exciting.

 

0:05:41.4 Bill: 1999. So I got invited to be a speaker, Andrew at Boeing's Annual All Auditors Conference. Right? So I'm thinking going into this, that these are a bunch of people that don't feel valued. Because it's not like I get a phone call and I say, hold on, hold on. Hey Andrew, I got good news. And you say, you're a coworker, what's the good news? Annual... Andrew, we're gonna be audited next week!

 

[laughter]

 

0:06:10.2 Bill: You're like, "Holy cow. Hold on, lemme go tell everybody." So I thought going into this meeting is, these are a bunch of people that don't feel valued. I'm an auditor at least that was, so that was my theory going into this, so it's a Monday afternoon gathering with a dinner and then all day the next, all day for a couple days. So the opening speaker, speaker on Monday night was the senior executive of a big Boeing division, it might have been Boeing defense let's say. And my theory was first of all, you got a bunch of people that don't feel valued and I came away from the three days thinking there's a whole lot going on in audit whether it's financial audit, data integrity audit, quality audit, these are necessary roles. And so I came out of it with great respect for that whole organization otherwise would think right, but I'm thinking this executive is going to come in, going to do the Friday, Monday night presentation and I'm thinking it's like they drew straws and they say well okay I'll go, I'll go up there and talk with them.

 

0:07:22.8 Bill: Within minutes of him speaking I'm thinking this guy's excited to be here. So I'm thinking he's going to kind of phone it in, now I'm watching this I'm thinking he is, he is really engaged with the audience. He's talking about, the future role of the audit organization being partners and all this and he's talking, I mean he's giving them an enormous bear hug and I'm thinking this is not what I thought and again and so... I'm still thinking he's either a really good actor or he really wants to be here. Then my theory was and I thought, holy cow, now I get it. How many people in the room Andrew would it take to leave the room with their nose out of joint and shut down the F18 program by noon tomorrow? How many people would it take?

 

0:08:21.3 AS: Not many, one.

 

0:08:22.9 Bill: Right, so then I'm thinking these, he needs these people to love him, because if he disrespects them, it's a bad day. So I went from thinking why would you want to be here if you were here, then I'm thinking, oh no. Now I'm thinking this is brilliant so then I look at the program and I'm thinking which other executives have figured out how valuable this is and I see the next day at lunch is Boeing Commercials I'm thinking they figured it out but the organization I was within was Boeing Space and they weren't on the program so I contacted a friend that was connected high up in Boeing Space, I said we've got to be in this program, right? So the program ending, it ended nice and I'm thinking wow, wow. So then just prior to lunch the next day is the number two guy for Boeing Commercial. Not the number one. The Monday night guy was the number one. The number one guy for Boeing Commercial at the time was Alan Mulally, it wasn't Alan Mulally, it was his number two person.

 

0:09:33.7 Bill: So he's up on stage, he's up on stage, he's up on stage. And he's talking to the audience and in parallel Jim Albaugh who at the time was CEO of Boeing Commercial, no Boeing Space and none of Jim's people were there, Jim wasn't there. Jim a couple weeks prior he had asked me to get with his speech writer at a presentation he was doing and he wanted some words in there about investment thinking and all the things we've been talking about in this. He said get with him and put some of that stuff in there put there some of that stuff in there. I said okay. So as I'm listening to the number two guy speak there's a lot of "we" and "you" but who's the we? And who's the you? So I'm making notes to myself to tell Jim don't say "you." Say "we" and make the "we" inclusive, 'cause the guy on stage is, the you and the we and the you and the we, and I said no no stay away from "you" focus on we but make sure they understand that "we" is all of us, right?

 

0:10:35.1 Bill: So this is what's going through my head and I'm writing it all down, writing it all down and then this guy says and I'll paraphrase. I wish I had the exact words and the paraphrase is pretty close to what he said as judged by what the audience heard, right? So when I heard the comment and I'm thinking to myself, you said what? Then I look around the room and I thought he did. Here's what he said again the paraphrase is: he made reference to those within Boeing that do the real work, and he said it in a way that was present company excluded right? Right, so I hear him say 'cause I'm getting, I'm making literally I'm making notes to myself and then I hear that comment and I'm like, did you just say what I thought you said? And I look around the room with 300 people and I'm thinking, Oh my gosh, you did and I'm seeing I am seeing people irate, you see the body language, right?

 

0:11:44.3 Bill: And I thought wow, how could you say that? So then the lunch speaker was Harry Stonecipher, the chief operating officer. And he was up, walking around the stage. I don't think he knew anything about what happened prior so he's up there talking, okay. After Harry we're getting back to the program and the guy running the entire event is now up on stage and he's very deliberately he's got a, he's got a piece of paper rolled up, he's walking around on stage, "yeah Scott misspoke no doubt about it. He misspoke, I hear you." I hear you, you are ready Andrew? You are ready, you are ready?

 

0:12:36.8 AS: Give it to me.

 

0:12:37.4 Bill: And then he says then he says "But let's be honest we don't make the airplanes." And I thought, really? And as soon as he said that, I had this vision of 250,000 employees, which was about the employment at the time. And so as soon as he said that, I just imagined being at the Everett facility, which is huge, where all the twin-aisle plants are made. And I had this vision of 250,000 people in the building. And the CEO Phil Condit says on the microphone, "Okay, I'd like all of you who make the airplanes to move to the west end of the building."

 

0:13:26.4 AS: And everybody else.

 

0:13:27.4 Bill: And it's what you get, is all the flight line mechanics move all the way over there. And then you show up and somebody looks at you and they don't see any grease on your hand, and they say, "ahhh you don't make the airplanes." And you say, "you see that tool in your hand? Who do you think ordered it?" And so this "we" and the "you" stuff, how did "you" do? How did "we" do? It was just, it was...

 

0:14:00.3 AS: He wasn't deliberately setting up the auditors to be pissed and then to be really, really tough on the rest of the organization. I'm teasing with that.

 

0:14:12.7 Bill: It was, it is just, I shared that with you and our audience as how uniting language can be and how divisive language can be. And so how did we do, how did you do, and what, with just, this is what I find fascinating is - these words bring people together. What I love, I love watching politicians or State Department people speak and 'cause what dawned on me is they are very deliberate on, I mean they to great lengths to not be divisive.

 

0:14:57.1 Bill: That's their job. And so they introduce people in alphabetical order, countries in alphabetical order. But they, and I thought, what a neat way of not inferring that the first one I list is the most important one and I just thought there's a just an art of diplomacy. And that's what, to me, that's what diplomacy is, is that the art of uniting, not dividing.

 

0:15:25.7 Bill: Alright. So now I wanna get into, in the three different groups last week we were doing the trip report and we got down to the hallway conversations and the ME Organization versus a WE Organization. And then a question I asked him was, who are the managers in a ME Organization and what do they do? And you got, those are the ones that set the KPIs. Mark the KPIs, beat you up, sit in their office. Okay. Who are the managers in the ME Organization? What do they do? Who are the managers in a WE Organization? And what do they do?

 

0:16:01.8 Bill: They are mentors. They're out there on the shop floor, they're working with people. People work for managers in a ME Organization. They work with managers in a WE Organization. So I get that and I think "Okay, pretty good. Pretty good. Pretty good." And then I follow with "Who are the leaders in a ME Organization and what do they do?"

 

0:16:26.4 Bill: And what's really cool is you get the same answers as the managers. And that's when I started noticing in a ME Organization, we'll refer to the senior leadership team, the senior management team, and we're talking about the same group of people. And I said, what we've just said is that manager and leader are the same. And then I say to people, so what is that message in a ME Organization? The message is, if you're not a manager, Andrew, then you're not a leader. Which means what? Which means you have permission to wait for direction.

 

0:17:12.5 Bill: Boeing had a leadership center in St. Louis. It was called the Boeing BLC, the Boeing Leadership Center. Yeah, Boeing Leadership Center. And in order to go there, you had to be a manager. You either had to be a first level manager, you would take frontline leadership, a middle manager, which I was, which is leading from the middle or an executive. But the model... So then I think part of the confusion is in a ME Organization, on the one hand we say, our managers are our leaders. If you're not a manager, wait for the direction, wait to be told.

 

0:17:49.7 Bill: But then we said, we want our managers to be leaders. But that's the ME Organization. In a WE Organization, in a Deming organization, I think of leadership is the ability to bring forth a new order of things, a new order of designing hardware, a new order of designing software, a new order of marketing, we're talking earlier and the ability to create a new order of things and the ability to create a path for others to follow.

 

0:18:20.6 Bill: And so then in a WE Organization, it's like show and tell. When we were in elementary school, you go in and say, I have discovered this. And I thought, in a WE Organization, everyone has the ability to be a leader on something within their realm. And why would you, why would you make leadership incl...exclusive, which is the ME Organization. And when I tell companies that I consult for I said, when you make leadership exclusive in a ME Organization, to me, that's a kiss of death 'cause you're telling a few people, you're in charge and you're telling everyone else, you're inferring that everyone else, you wait for direction, again.

 

0:19:09.0 Bill: And I'm not proposing, everyone's all over the place doing it. No. There's got, this is not chaos. And if I have an idea on something and it's not my assigned responsibility, then I know to reach out to you because you're the marketing guy and I just throw the marketing idea to you and then you do with it what you want. But I look at leadership in a WE Organization as being inclusive. And then we get into this idea of, driving...driving change.

 

0:19:38.0 AS: Let me just ask you about that. Would this really be down to the core principle of Appreciation of a System? That somebody who appreciates a system knows that there's all kinds of components to that system?

 

0:19:55.5 Bill: Yes, yes.

 

0:19:55.6 AS: And that you can't say, oh, well this system really is only the people that are working on the production line, when in fact we know that there's all kinds of people working in that system. If I think about my coffee business as an example, we have a hundred employees and not all of them are working on production. And some are moving paperwork and making phone calls and others are out in the field. So an appreciation of a system brings you to the "we" rather than....

 

0:20:23.0 Bill: Yes.

 

0:20:23.5 AS: And a person who gets up and says about me, or, tries to identify that there's a certain number of people that are really driving the performance of this company are, they just have no appreciation for a system.

 

0:20:39.1 Bill: They have a narrow, a narrow view, a narrow view. So what you just said triggered another thought. But, um, the thing I wanted to add to this, in a ME Organization, it's about driving change. And we've talked about this in prior podcast. I go to, you put a gun to your head and I say, I want this KPI by Friday, Andrew. And you're like, yes, sir. And then I said to people in the past is, if driving change is the mantra of a ME Organization, like you're driving cattle driving, driving, and which is not an endearing concept. It is, it is, this is the where we're going. And I say to people, so what would you call it if driving is the ME construct, what is, what's the language of a WE Organization? And people will be wondering "ah," I say "lead, lead, lead." And if we like where you're going, we will follow. That's you creating the path that we will follow.

 

0:20:40.0 Bill: So I just wanna throw that out. But the other thing you mentioned about the metrics and the design of the organization and the thinking that, these are the critical people. At lunch with an old friend today, and I was sharing with her I taught a course at Northwestern's Business School, Kellogg Business School in the late '90s. And Kellogg then, and today is the number one or number two business school in the country. And I had a friend who was a student there in..., they liked what I was saying. So they hired me to teach a five week course for four years. And I presented, these ideas to them and it was pretty cool. I was, what was exciting is one of them told me that, what I was sharing with them about Deming, you are ready Andrew? contradicted what they were learning in their other classes.

 

0:22:46.2 AS: Huh. Funny that.

 

0:22:48.7 Bill: Yep. And so I did that for four years. There were three classes in quality. One was the use of control of charts, mine was called Quality Management, or TQM or something like that. And so there were roughly 80 students in the program, and they had to take two of the three, five week courses. So I got two out three students in the program. Then after four years, they waived the requirement. And so nobody signed up. And so I, um, after, right after 9/11 was when this happened, they invited me back because the person I was working with really liked what the course was about. But they wanted to, make it optional for people to attend. And he said, why don't you come out and talk with them and, that'll inspire them to sign up for the following year. I said, okay, fine. So I went out and he says there'll be 80 people there. I said, why are you so confident? He said, well, we've made it mandatory for everyone to show up. I thought, well that's, I said, that's one way to get people in the room. I said, do me a favor. I said, let them know I'm coming out and I'll have breakfast, I'll have lunch with whoever would like to meet with me beforehand.

 

0:22:50.7 Bill: So a dozen of them show up. And one of them says to me he says, you're gonna have a, he says something like, it's only fair to say we had a presenter like you last week. And to be honest, it's gonna be a really hard act for you to follow. So I'm thinking, "well, tell me more." "Well, we had a presenter last week who works for a company that makes pacemakers," I'm thinking, okay, "he had a video and showing people before and after their pacemaker one of the fellow students fainted. It was emotional." And I'm thinking, I'm talking about rocket engines. I don't even have a video. It's not gonna be emotional. I let the guy talk. And at one point he says "they keep track." He said "they keep track of who makes each pacemaker." I said "what do you mean?" He says, "they have a list of the people."

 

0:23:42.9 Bill: Every pacemaker is associated with a team of people who made the pacemaker. And part of what they saw on the video is people who have received a pacemaker now and then go to that company and they meet the people on their team, Andrew, who made their pacemaker. How do you like that concept? Right? Does that, when you graduate from this MBA program, Andrew, isn't that a neat idea that you can take away and use with you? Right? Right? Isn't that a takeaway? Right? So I'm hearing this [laughter] so I said, "let me see if I got this straight. So you're saying they keep track of who makes each pacemaker?" "Yeah, they do." And that's because, when people come well, people come to visit and they keep track. So let's say I said to the student, "let's say I'm the guy who orders the plastic that goes into the pacemaker. Would I be on the list?" you know what he says, Andrew?

 

0:26:01.9 Bill: No, you didn't make it.

 

0:26:04.0 Bill: He says, "no," let me try this. I'm the one who wrote the check, Andrew, that paid for the plastic. Would I be on the list? What he says Andrew? "No, you wouldn't be on the list."

 

0:26:20.2 Bill: So, I said, "well, why not?" And he says, "you have to draw the line someplace." So, I had with me, post 9/11, ready? I had with me a United We Stand two-foot by three-foot poster, which were all over Los Angeles and likely all over the rest of the world, at least the States. So, I held up the poster, and I said, "Have you seen this before?" He said, "Oh, yeah, United We Stand. I'm all about that." I said, "No, you're not." [laughter] I said, "You think you can draw the line and know who contributes and who doesn't, right?"

 

0:27:02.8 Bill: And you can suddenly see him kind of back up. I said, "Well, let's be honest." I said, "If teamwork doesn't matter, then draw the line any way you want. It doesn't really matter. But if teamwork does matter, be very careful where you draw that line." And to me, in a WE Organization, "we" is, who is the "we"? It's a big list of people. It's the employees, it's the suppliers, it's the customers. And so anyway, it's just that, so what's neat is, go ahead, Andrew.

 

0:27:41.6 AS: While you were speaking, I was able to go online and find the website of North, what was it? North?

 

0:27:49.5 Bill: Northwestern.

 

0:27:50.3 AS: Western, yes. And I was able to actually find the course that you're talking about that was the one that the students said that what you're teaching is contradicting.  The name of that course, I just found it, here it is, "How to apply KPIs to drive in fear and division in your company." No, no, I just made that up. [laughter] "How to apply KPIs to drive in fear and division in your company?"

 

0:28:16.7 Bill: All right. And so, and we're gonna get to that. So, so as, so I look at management, there's management as a position, but I look at management as an activity of how we allocate resources. And so, are the resources mine or are they ours? And are we proactive or reactive? And then we talked in the past about purposeful resource management, reflective resource, reflexive resource, resource management, which is being highly reactive. Another thing that came to mind. Well, actually, let me jump to the loss function. We looked at last time because I was going through and listening to it. And I thought, let me, let me clarify.

 

0:29:00.7 Bill: And so when Dr. Taguchi would draw his, his parabolic loss function, a parabola is a curve that goes higher and higher as you get farther and further away from the center. It's like a bell and it just gets steeper and steeper and steeper. And his loss function would be an upward facing bell. And, and then, and he would draw it sitting on the, on the horizontal axis. The idea of being, when you're at the ideal, the loss is zero. And that's, if you're getting exposure to this for the first time, that's okay. But in fact, let me even throw in here a quote from Dr. Deming. Do I have it right here?

 

0:30:00.4 Bill: Oh, gosh. Anyway, Dr. Deming made reference to, he said, the Taguchi loss function is a better description of the world. And he talks about how loss continuously gets higher and higher and higher. The point I wanted to make is, what I tell people is, once you get used to that concept that loss gets higher and higher, and what matters is how steep that curve is. And so if that curve is very flat, then no matter where you are within the requirements, nobody really notices. And in that situation, you could have a lot of variation 'cause it doesn't show up. It's not reflected in terms of how...

 

0:30:40.2 AS: And maybe just to help the listener to visualize this, imagine a V.

 

0:30:44.6 Bill: Yes.

 

0:30:45.1 AS: And imagine a U. And a V has a very tiny point that is at zero loss. And it very quickly rises to both sides where loss is getting higher and higher. Whereas a very, kinda, let's say, a deep U could have a tiny little loss that's happening for a distance away from the minimum loss point, and then eventually turn up.

 

0:31:14.4 Bill: Well, but even, even Andrew, and I like the idea of the V. We could also be talking about a V where the sides, instead of being steep, are very flat. So it's a very wide V, and it never goes high because there's situations where, where the impact on integration is very minimal no matter what. All right. So anyway, um, the point I wanted to make is, I would say to our listeners and viewers, loss, the consequences of being off target, are the difference between what happens downstream at integration. And what I love, I went back and listened to the podcast, the one, you talked about your partner in the coffee business.

 

0:32:12.2 Bill: The point of integration is when they drink the cup of coffee. And that's integration. I mean, the point when they're, when we're eating a food, that's integration. So the piece of coffee is out there, whatever it is. But when the customer's using it, drinking it, that's integration, Andrew. And a...

 

0:32:32.2 Bill: And so... What I look at is what the loss, loss is the difference between what you see happening at integration and what you think is possible. So if we're at the Ford factory banging things together with rubber mallets day after day after day and you're the new hire and I show you how to do this, as soon as you begin to believe this is how we do things, then loss is zero. Because that's what we think is the norm. But if you have the ability to rise above that and say, I don't think it needs to be that difference, when you look at it and say, I don't think it needs to be the difference between what you think is possible and what it could... Difference between what is and what you think could be that's loss. And what I also say to people is it takes a special eye that you have to see that. It's like your coffee business, somebody's tasting that coffee and you're thinking this is pretty good. Then they say, "well, try this", whoa.

 

0:33:40.1 Bill: So it takes a special eye to see loss. But then it takes a whole lot of other people to make that happen. So whether that's people in engineering, manufacturing. So a WE Organization is where someone has the ability to see that opportunity, but it's dependent upon all the others to make it happen. So now let's talk about Beyond Management by Extremes. And these are... Has a lot to do with KPIs and also say in one of our last, wasn't the last one, it was a couple before that you had made clear your firm belief that KPIs need to be thrown away in the morning trash. And I remember on the call listening to you and I'm hearing you, we ought to get rid of them, we ought to get rid of them, we ought to get rid of them.

 

0:34:38.5 Bill: And I'm thinking they aren't bad, it's how they're used. And so I wasn't sure I was in agreement with you on that call. But when I went back and listened to it and that's what what I, what I told the friend is, I said, if you listen to what Andrew says, I don't say anything at the end. And the reason I didn't say anything is I wasn't sure I agreed. But when I went back and listened to it most recently, I said, yes! yes! yes! 'Cause what you said is: if they can be used without an incentive system. And I thought, yes, yes, yes, yes. And so we are in agreement on KPIs, [laughter] they are... But what we have...

 

0:35:25.2 AS: Which, which my, which my point is, number one, that as long as you don't attach some kind of incentive or compensation system, then, you're not that, you've eliminated a lot of risk that they're causing damage. The second part is a lot of times what I'm looking at is individual KPIs. And what I'm trying to say is that even if you don't add in compensation, it's, it's, it's a fool's errand to try to set up, three KPIs for a thousand people, three thousand KPIs individually and think that now we've got that set. Our organization is going to really rock now.

 

0:36:06.0 Bill: Well, then what you get is the KPIs are always round numbers. We want to decrease by 5%, increase by... And you're thinking, so how much science getting to these numbers anyway? And you're thinking, but early on in your career, you look at this, you think, well, somebody's thought about this and you realize, no. And so what management by extremes is about is KPIs that are extreme. And so I my PhD advisor in graduate school, I was studying heat transfer and fluid mechanics and and before each of us graduated, went to work in corporations, he'd pull us aside and he'd say, he'd say, "Bill, he said you're gonna be in a situation one day where your boss is gonna come by and is gonna give you.... He's going to give you an assignment, that gives you, he's gone give, that gives you five minutes to figure it out."

 

0:37:05.7 Bill: And he says, "so, if he or she comes he comes to you, she comes to you and they give you five minutes to figure out, he said there's only three possible answers and I'll tell you what they are and you got to figure out which of them it is and so it'll take you a minute to figure out which one it is. And then the rest of the time you're going to explain it." I remember saying to him, I says, so, "Okay, so what are the three possible answers?" And he says "zero, one and infinity", 'cause it turns out in the world of heat transfer and fluid mechanics, those three numbers show up pretty often as ideal solutions for different cases. And so what he's saying is when your boss comes to you and says, boom, then you have to say, which case is that? 'Cause if that's this case, it's zero.

 

0:37:51.0 Bill: This case, it's one. This case is infinity. So I thought, okay. Well, in Dr. Taguchi's work, he talks about quality characteristics. So we're running experiments to improve something and a quality characteristic could be as large as possible, infinity being the ideal, the strength of the material. We want to make it stronger and stronger and stronger. But it's referred to as larger is best, meaning infinity is the ideal, smaller is best I'm trying to reduce leakage. I'm trying to make something smoother and smoother.

 

0:38:25.9 Bill: That's smaller is best. Zero is the goal. And the other one is to get your first who is nominal as best, where a finite number is the answer. And so what I had in mind with this management by extremes, inspired by my Ph.D. advisor, inspired by Deming, Dr. Taguchi, is that, if the KPI is driving to zero or driving to infinity, we want the inventory Andrew to go to zero. We want sales to go to infinity. I said, if you're thinking about things systemically, I don't think zero or infinity is what we're going to do. And so I throw that out as not all the time, but I think quite often if the KPI, if you're working on something where you're heading to zero, heading to infinity, to me, that's a clue that you're looking at something in isolation. And I would say to people.

 

0:39:25.2 Bill: Let's say you're, you call me in Andrew and you say, "Bill, we need your help getting the cost down of this project." And I say, "well, what'd you have in mind?" You say, "Bill, we'd we'd love to get 10% out of this cost. Boy, 10%." I said, "Andrew, I can double that." "No way. No way" And I say, "Andrew, on a good day, I could do more than that." And then what I say is that the more you get excited by how much we could lower that cost, eventually I'm going to say, "Andrew, gotcha." And you say, "what do you mean?" "Gotcha. Andrew, you're looking at cost in isolation." What's the clue? You'd love it to go to zero. Or... And that's what we end up doing is we want to drive variation to zero. That's the Six Sigma people. Well, first of all, cloning does not produce identical.

 

0:40:30.6 Bill: Photocopies don't create identical. Dr. Deming would say that of course there's variation. There'll always be variation. And then there are people, and and I cringe. But Dr. Deming was once asked. He was interviewed by somebody I believe with the BBC back in the '80s. And the interview ends with "So Dr. Deming, if we can condense your philosophy down to two, down to two words, what would it be? Or down to a few words, what would it be?" And he said, "reduce variation" or something like that. And I said, "no, it should be manage variation. We should have what the situation needs." And so I'm going to absolute agreement with you. On how can we have KPIs without goals which make make things even more isolated. And then we talk about by what method are we going to achieve those goals? But I think if we're talking about driving variation to zero, then you're looking at things in isolation. If you are driving waste to zero.

 

0:41:20.8 Bill: then you're looking at things in isolation. If you're talking about, the non value added efforts driving to zero. I'd say value shows up elsewhere. I had somebody within Boeing once say to me "Bill, you know, being on target, you know being on that ideal value, I've had people tell me that once you achieve the minimum size of a hole, going further doesn't add value." And I'd say "If all you're doing is looking at the hole, I can understand that. But if you're focusing on what goes in the hole, that's different." And the other thing I throw out is I was doing some training years ago. There was a guy in the room that I, I mentioned the term "value engineering" 'cause I remember when I got excited by Taguchi's work and Deming's work, somebody said, "The last big training, big thing was value engineering." "What do you mean?" And they pulled out their "That was the wave of the sixties was value engineering." So I asked this guy in class. I said, so, he mentioned he worked at GE back in the '60s and value engineering was really big. So I said, well, "So tell me about that. What was behind that?" He says, “We were taught to look at a contract and all the deliverables. And our job in the value engineering department was to figure out how to, how to meet each deliverable minimally because anything more than that doesn't add value." And I thought, you can't make that up!

 

0:42:53.0 Bill: Let's look at all the requirements and how do we go to? What's the absolute minimum we have to deliver on the term paper, on the project.

 

0:43:06.5 AS: How could we kill this through a thousand cuts?

 

0:43:10.8 Bill: So that's KPIs. Driving to zero driving to infinity. But, but we're in agreement that if you, in a Deming organization where we're not driven by incentives then KPIs are measures of how we are doing. And why isn't that enough to be able to say, how are things? How are things? We can talk about how might we improve this? But then we're going to look at: Is that a local improvement that makes it worse elsewhere? Are we driving costs to zero and screwing this up? So that's what, that's what I wanted to throw out on this management by extremes zero and infinity, and getting beyond that.

 

0:43:47.6 AS: Well, I think that's a great point to end it went through so many different things, but I think one of the biggest takeaways that I get from this is the idea of appreciation of a system. When you have a true appreciation of a system and understand that there's many parts and, you know, adding value in that system basically comes from more than just being on a production line, for sure and creating value in an organization comes from not only working on improving a particular area but the integration of the many different functions. And if you don't understand that, then you end up in not a Deming organization, not a WE Organization, but more of a ME Organization. That's kind of what I would take away. Is there anything you would add to that?

 

0:44:51.9 Bill: Well, what, what reminds me of what you're just saying is I was doing a class years ago for a second shift group in facilities people, painters, electricians, managers, and one of them says, he says "so Bill, everyone's important in an organization." I said, "absolutely. Absolutely everyone's important."

 

0:45:13.2 Bill: Then he says, "everyone's equally important" right? And as soon as he said that, I thought to myself, "I remember you from a year ago." So he says, "So so everyone's important." "Yeah, everyone's important!" "Everyone's equally important." So as soon as he said that, within a fraction of a second, my response was, "No, if you wanna get paid what a quarterback gets paid, you better, you better train to be a quarterback." So what Dr. Deming is not, he's not saying everyone's paid the same. We're paid based on market rates for quarterbacks, for linemen, for software people. And the, and the better we work together, ideally the better we manage resources, the better the profit, we get in the profit sharing, but we're not equal. Our contributions are not equal. The contributions cannot be compared. They are, they're all part of the sauce, but we don't get into who contributed more." Right, and I think that'... We're all contributors.

 

0:46:28.3 AS: The more you learn about Dr. Deming's teaching, you just realize that there's an appreciation of a system, but there's also an appreciation of people.

 

0:46:40.1 Bill: There we go.

 

0:46:43.2 AS: That's really where, as I have said before, when my friend was working with me on my book, Transforming Your Business with Dr. Deming's 14 Points, after many many weeks of working together, he's like, "I figured it out. Dr. Deming is a humanist. He cares about people." It's pretty true. So appreciate the people around you, appreciate the contribution that everybody makes. Nobody makes equal contributions. And even great people who are making amazing contributions could have down months or years where there's things going on in their family or other issues. They're not contributing what they did in the past.

 

0:47:17.1 AS: That's a variable that we just can't control. But ultimately, appreciation of the system is what I said in my summary. And now I'm gonna add in appreciation of the people.

 

0:47:30.6 AS: Bill, on behalf of everyone at The Deming Institute, I wanna thank you again for this discussion. Again, entertaining, exciting, interesting. For listeners, remember to go to deming.org to continue your journey. And if you wanna keep in touch with Bill, just find him on LinkedIn. 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".