Chapter 2
W. Edwards Deming’s Theory
of Management
Learning Objectives
Explain W. Edwards Deming’s Theory of
Management.
Discuss Deming’s 14 Points for Management.
Discuss the paradigm shift in management
caused by Deming’s theory of management.
Brief History of Quality
Issues of quality have existed since tribal chiefs,
kings, and pharaohs ruled.
The front (left) side of the
“Narmer Palette” shows
6 papyrus reeds under
a falcon. Each papyrus
reed represents 1,000
enemies captured by
King Narmer. This Is a
pictograph and is one
of the earliest uses of
statistics.
Another example of a quality issue in ancient times
is found in the Code of Hammurabi dating from as
early as 2000 BC. Item 229 states, "If a builder has
built a house for a man, and his work is not strong,
and the house falls in and kills the householder,
that builder shall be slain."
W. Edwards Deming’s Theory of
Management
Introduction
In the Western world, managers have frequently
operated using the following assumptions (often
without realizing it):
1. Rewards and punishments are the most effective
motivators for people.
2. Optimization of every area in an organization leads to
optimization of the entire organization.
3. Results are achieved by setting objectives.
4. Quality is inversely related to quantity.
5. Rational decisions can be made based on guesswork
and opinion.
6. Organizations can be improved by fighting fires.
7. Competition is a necessary aspect of life.
Purpose
Deming's theory of management promotes “joy in
work” for all of the stakeholders of an organization.
Deming believed that joy in work will “unleash the
power of human resource contained in intrinsic
motivation. Intrinsic motivation is the motivation an
individual experiences from the sheer joy of an
endeavor.”
Paradigms
Deming’s theory of management is based on four
paradigms.
You can think of each of Deming’s paradigms as a
shift in assumptions for the practice of
management.
Paradigms
People are best inspired by a mix of intrinsic
and extrinsic motivation, not only by extrinsic
motivation.
Manage using both a process and results
orientation, not only a results orientation.
Management's function is to optimize the entire
system so that everyone wins, not to maximize
only their component of the system.
Cooperation works better than competition, if
the aim of the system is not to win.
Components
Deming’s theory of management comprises four
components: appreciation of a system, theory of
variation, theory of knowledge, and psychology.
All four components are interdependent. This
discussion presents some of the highlights of
Deming’s theory of management.
One need not be eminent in any component to
effectively use the theory of management.
Appreciation of a System
A system is a collection of components that interact and
have a common purpose or aim.
It is the job of top management to optimize the entire
system toward its aim.
It is the responsibility of the management of the
components of the system to promote the aim of the entire
system; this may require that they sub-optimize some
components.
Theory of Variation
Variation is inherent in all processes.
There are two causes of variation, special causes and
common causes.
Theory of Variation
Special causes of variation are external to the system.
It is the responsibility of local people and
engineers to determine and resolve special
causes of variation.
Common causes of variation are due to the system itself.
It is the responsibility of management to isolate
and reduce common causes of variation.
Theory of Variation
A system that does not exhibit special causes of variation is
stable.
It is a predictable system of variation.
Its output is predictable in the near future.
There are two types of errors:
Treating a common cause of variation as a
special cause of variation. This is called
tampering and will invariably increase the
variability of a system.
Treating a special cause of variation as a
common cause of variation.
Shewhart developed the control chart to provide an
economic rule for minimizing the loss from both types of
mistakes
Management requires knowledge about the interactions
between the components of a system and its environment.
Theory of Knowledge
Knowledge is developed by stating a theory, using the
theory to predict a future outcome, comparing the observed
outcome with the predicted outcome, and supporting,
revising, or even abandoning the theory.
Experience is of no value without the aid of theory. Theory
allows people to understand and interpret experience.
All plans are based on assumptions. An assumption is the
future output of a process. If the process underlying an
assumption is not stable with an acceptable degree of
predictability, then the assumption required for the plan
cannot be relied upon with any degree of comfort.
Consequently, the plan must be changed or abandoned, or
the process must be improved to enhance the likelihood of
the assumption being valid when called for by the plan.
Communication is possible when people share operational
definitions.
Success cannot be copied from system to system. The
reason for success in one system may not be present in
another system.
Psychology
Psychology helps us understand people, the interactions
between people, and the interactions between people and
the system of which they are part.
Management must understand the difference between
intrinsic motivation and extrinsic motivation.
All people require different amounts of intrinsic and
extrinsic motivation.
It is the job of a manager to learn the proper mix of the
two types of motivation for each of his people.
Over-justification occurs when an extrinsic motivator is
used to reward a person who did something for the sheer
joy of it.
People are different.
They learn in different ways and at different speeds.
A manager of people must use these differences to
optimize the system of interdependent stakeholders of an
organization.
Sources of power
Power from position
Power from personality
Power from knowledge
Deming’s 14 Points for
Management
The System of Profound Knowledge
generates an interrelated set of 14 Points for
leadership in the Western world.
These 14 Points provide guidelines, or a road
map, for the shifts in thinking required for
organizational success.
They form a highly interactive system of
management; no one point can be studied in
isolation.
Point 1
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.
Leaders must state their organization's values
and beliefs.
Leaders must create statements of vision and
mission for their organizations based on these
values and beliefs
The values and beliefs plus the vision and
mission statements provide a frame of reference
for focused, consistent behavior and decision-
making by all stakeholders of an organization.
Point 2
Adopt the new philosophy. We are in a new
economic age. Western management must
awaken to the challenge, must learn their
responsibilities, and take on leadership for
change.
Point 2 encompasses the paradigm shifts that
leaders must accept as a consequence of
Deming's System of Profound Knowledge.
Point 3
Cease dependence on inspection to achieve
quality. Eliminate the need for inspection
on a mass basis by building quality into
the product in the first place.
There is a hierarchy of views on how to
pursue predictable dependability and
uniformity at low cost:
Defect detection
Defect prevention
Continuous improvement.
Defect detection involves dependence upon mass
inspection to sort conforming material from defective
material.
Kp rule (mass inspect or monitor)
Defect prevention involves improving processes so
that all output is predictably within specification limits.
Defect prevention is the “goal post” view of quality.
Continuous improvement is the on-going reduction of
process (unit-to-unit) variation, even within
specification limits.
Continuous improvement is the Taguchi Loss
Function view of quality.
Point 4
End the practice of awarding business on the basis
of price tag. Instead, minimize total cost. Move
toward a single supplier for any one item on a
long-term relationship of loyalty and trust.
Buyers and vendors form a system.
If each individual player in this system attempts to
optimize his own position, the system will be sub-
optimized.
Optimization requires that policy makers understand
the three scenarios in which purchasing can take
place. Deming called these three scenarios World 1,
World 2, and World 3.
World 1 is characterized by a purchasing
situation in which the customer knows what
she wants and can convey this information to
a supplier. In this scenario, purchase price is
the total cost of buying and using the product
(for example, no supplier provides better
service than any other supplier), several
suppliers can precisely meet the customer's
requirements, and the only difference
between suppliers is the price.
In this world, purchasing on lowest price is the most
rational decision.
In World 2 the customer knows what she wants
and can convey this information to a supplier.
The purchase price is not simply the total cost of
buying and using the product (for example, one
supplier may provide better service than any other
supplier): several suppliers can precisely meet the
customer's requirements, and all suppliers quote
identical prices.
In this world, purchasing based on best service is
the most rational decision.
World 2 frequently includes the purchasing of
commodities.
In World 3 the customer thinks she knows
what she wants and can convey this
information to a supplier.
However, she will listen to advice from the supplier
and make changes based on that advice.
Purchase price is not the total cost of buying and
using the product - for example, there is also a cost
to use the purchased goods.
Several suppliers tender their proposals (all of
which are different in many ways) and all suppliers
quote different prices.
In this world, selecting a supplier will be difficult.
In World 3, after careful and extensive research, it
makes sense for customers and suppliers to enter
into long-term relationships based on trust (i.e.,
relationships without the fear caused by threat of
alternative sources of supply) and statistical
evidence of quality.
Such long-term relationships promote continuous
improvement in the predictability of uniformity and
reliability of products and services, and, hence,
lower costs.
The ultimate extension of reducing the supply base
is moving to a single supplier and purchasing agent
for a given item.
Single supplier relationships should include
contingencies on the part of the supplier and
customer for disasters.
Point 5
Improve constantly and forever the system of
production and service to improve quality and
productivity, and thus constantly decrease
costs.
Operational Definitions
SDSA Cycle
PDSA Cycle
Empowerment
Operational Definitions
Operational definitions increase communication
between people and help to optimize a system;
they require statistical and process knowledge.
SDSA Cycle
Standardize–Do–Study–Act (SDSA)
Cycle
Empowerment
The prevailing definition of empowerment
relies loosely on the notion of dropping
decision-making down to the lowest
appropriate level in an organization.
Empowerment in a Quality Management
sense is a process that provides employees
with:
The opportunity to define and document their key
systems.
The opportunity to learn about systems through
training and development.
The opportunity to improve and innovate the best
practice methods that make up systems.
The latitude to use their own judgment to make
decisions within the context of best known methods.
An environment of trust in which superiors will not
react negatively to the latitude taken by people in
decision-making within the context of a best
practice method.
Operationalizing Empowerment
Empowerment is operationalized at two levels.
First, employees are empowered to develop and
document best practice methods using the SDSA
cycle. Second, employees are empowered to
improve or innovate best practice methods
through application of the PDSA cycle
Point 6
Institute training on the job.
Training in job skills is a system.
Effective training changes the skill
distribution for a job skill.
Training is a part of everyone's job and should
include formal class work, experiential work, and
instructional materials.
Training courseware must take into consideration
how the trainee learns and the speed at which
she learns.
It should utilize statistical methods that indicate
when an employee reaches a state of statistical
control.
If an employee is not in statistical control with
respect to a job characteristic, then more training
of the type she is receiving will be beneficial.
if an employee is in a state of statistical control
with respect to a job characteristic, then more
training of that type will not be beneficial
Point 7
Institute leadership. The aim of leadership
should be to help people and machines
and gadgets to do a better job. Leadership
of management is in need of overhaul, as
well as leadership of production workers.
A leader must see the organization as a system of
interrelated components, each with an aim, but all
focused collectively to support the aim of the
organization. This type of focus may require sub-
optimization of some system components.
“A leader uses plots of points and statistical calculations,
with knowledge of variation, to try to understand both his
performance and that of his people.”
A leader must understand that experience without theory
does not facilitate prediction of future events. For
example, a leader cannot predict how a person will
perform in a new job based solely on experience in the
old job.
A leader must be able to predict the future to plan the
actions necessary to pursue the organization's aim.
Prediction of future events requires that the leader
continuously work to create stable processes with low
variation to facilitate rational prediction.
Point 8
Drive out fear so that everyone may work effectively
for the company.
There are two kinds of negative reactive behaviors:
fear and anxiety.
Fear is a reaction to a situation in which the person
experiencing the fear can identify its source.
Anxiety is a reaction to a situation in which the
person experiencing the anxiety cannot identify its
source.
We can remove the source of fear because it is
known, which is not the case with anxiety.
Consequently Point 8 focuses on driving out fear.
Fear has a profound impact on those working
in an organization, and consequently, on the
functioning of the organization.
A statistically-based system of management
will not work in a fear-filled environment.
Management is responsible for changing the
organization to eliminate the causes of fear.
Point 9
Break down barriers between departments.
People in research, design, sales, and
production must work as a team to foresee
problems of production and in use that may
be encountered with the product or service.
Barriers between the areas of an organization
thwart communication and cooperation. The
greater the interdependence between the
components of a system, the greater is the
need for communication and cooperation
between them.
Point 10
Eliminate slogans, exhortations, and targets for the
work force that ask for zero defects and new
levels of productivity.
Slogans, exhortations, and targets do not help to form a plan or
method to improve or innovate a process, product, or service.
They do not operationally define process variables in need of
improvement or innovation. They do not motivate individuals or
clarify expectations. Slogans, exhortations, and targets are
meaningless without methods to achieve them.
Slogans, exhortations, and targets shift responsibility for
improvement and innovation of the system from management to
the worker. The worker is powerless to make improvements to
the system. This causes resentment, mistrust, and other
negative emotions.
Point 11a
Eliminate work standards (quotas) on the factory
floor. Substitute leadership.
A work standard is a specified level of performance
determined by someone other than the worker who is
actually performing the task.
Work standards do not provide a road map for
improvement, and they prohibit good supervision and
training.
Work standards are negotiated values that have no
relationship to the capability of a process.
Work standards are frequently used for budgeting,
planning, and scheduling, and provide management
with invalid information on which to base decisions.
Point 11b
Eliminate management by objective. Eliminate management by
numbers and numerical goals. Substitute leadership.
The Old Way
Numerical do not include methods, and hence, do not provide
a mechanism for improvement of a process. In a stable
system, the proportion of the time an individual is above or
below a specified quota/goal is a random lottery.
Managers use management by objectives (M.B.O.) to
systematically break down a "plan" into smaller and smaller
subsections.
Arbitrary numerical goals hold people accountable for the
problems of the system, and consequently, steal their pride
of workmanship.
The New Way
A group of components come together to form a system with
an aim.
The aim requires that the components organize in such a way
that they create subsystems.
The subsystems are complex combinations of the
components.
The subsystems require certain methods to accomplish the
aim.
Resources are allocated between the methods by setting
goals or targets that may be numerical and that optimize the
overall system, not the subsystems, with respect to the aim.
The aim, methods, and goals are all part of the same system;
they cannot be broken into three separate entities. Separation
of the aim, methods, and goals destroys them because they
are defined by their interactions.
Point 12
Remove barriers that rob the hourly worker of his right to
pride of workmanship. The responsibility of supervisors
must be changed from stressing sheer numbers to quality.
Remove barriers that rob people in management and
engineering of their right to pride of workmanship. This
means abolishment of the annual merit rating and of
management by objective.
People enjoy taking joy in their work, but very few are able to do
so because of poor management.
Management must remove the barriers that prevent employees
from finding joy in their work.
In the current system of management there are many such
barriers.
Employees not understanding their company's mission and what is
expected of them with respect to the mission.
Employees being forced to act as automatons who are not allowed to
think or use their skills.
Employees being blamed for problems of the system.
Hastily designed products and inadequately tested prototypes.
Inadequate supervision and training.
Faulty equipment, materials, and methods.
Management systems that focus only on results, such as daily
production reports.
The traditional performance appraisal process.
Organizations will reap tremendous benefits when management
removes barriers to joy in work.
Point 13
Encourage education and self-improvement
for everyone.
Education and self-improvement are
important vehicles for continuously improving
employees, both professionally and
personally.
Remember, training (Point 6) is to improve job
skills, while education (Point 13) is to improve
the individual, regardless of his or her job.
Point 14
Take action to accomplish the transformation.
The transformation of an organization from its current
paradigm of management to the System of Profound
Knowledge cannot occur without the expenditure of
energy by its stakeholders.
Top management will expend this energy due to a
variety of causes -- for example a crisis or a vision.
Other stakeholders will expend this energy if
stimulated by top management.
The transformation cannot take place without a critical
mass of stakeholders.
Transformation (Paradigm Shift)
Quality in Service, Government,
and Education
The principles and methods for process
improvement are the same in all organizations.
The System of Profound Knowledge and 14
Points apply equally to all sectors of the
economy.