In the early 1980s, W. Edwards Deming laid out a treatise for (primarily manufacturing) companies that boiled down to this: obsessive commitment to efficient production of customer-relevant products made to high standards of quality yields an economic juggernaut. The secret sauce of Dr. Deming’s hypothesis was continuous improvement: all of the key verbs and nouns are evolutionary. What is efficient today is lackadaisical tomorrow. What is obsessive today is passive tomorrow. What delights customers today will be basic expectations tomorrow. What is value for money today is expensive tomorrow. What is high quality today is minimally acceptable tomorrow.
Dr. Deming did not define a target to-be state in a singular sense. Instead, he defined a target state of being: a process is in a state of statistical control or it is not; it can be in a state of statistical control where it consistently produces defective things, or it can be in a state of statistical control where it consistently produces quality things, or it can simply be not in a state of statistical control and there is too much inconsistency in the things it produces to benefit from systemic improvement (i.e., the system is flawed). This is what mattered most: the point isn’t just to make a thing people want with few defects for the cheapest possible price: that will last until customer needs change and somebody else figures out how to produce a comparable product of higher quality at a lower price. The point is to always be in a stable state so that the business can perpetually improve - what it makes, how it makes, how much it spends - in a systemic fashion.
I posted recently that manufacturers have forgotten what Deming accomplished and then translated into principles and practices, patterns and anti-patterns. I’ve re-read his seminal book and a predecessor by his mentor Dr. Walter Shewhart to understand why this isn’t orthodoxy in manufacturing, software development, and service delivery today. It’s present in word if not deed, and not pervasive in practice.
Re-reading Out of Crisis today, it’s immediately clear that Deming’s target audience was hands-on engineering leaders in things like materials, engineering design, machining and quality analysis. His words betray a preference for experienced practitioners and a disdain for administrators and presiders. In practice, the people who are responsible for leading change in how things are made and delivered are not the people responsible for making and delivering, but consultants and off-the-line junior staffers. That makes for an ironic twist. Deming relays the story of the Bank Administration Institute advising 14,000 US banks to establish a productivity office to measure productivity, to which he quipped: "The speaker’s plans would thus create 14,000 jobs. Unfortunately, measurement of productivity does not improve productivity." Deming’s book created thousands of change management jobs whose responsibility it was to define programs to implement his practices.
Deming is dismissive of rather than combative with corporate finance. Rather than taking it on directly, he repeatedly stresses that being finance-first - e.g., leading with growth targets or efficiency gains divorced from operating reality that has prevented those gains organically in prior periods - is corporate malpractice. In the high cost of capital era of the late 1970s, this ignored the elephant in the room. In an era of moderate (4xx bps) capital costs, that omission demotes Deming’s wisdom as a temporally relevant thesis, not so much a timeless one. This is the case if for no other reason than the corporation as a financial phenomenon is even more pronounced today than it was half a century ago due to the sheer complexity of contemporary corporate finance. As in, it was easier for engineers in the 1980s to overcome the friction created by what we regard today as the crude financial instruments of the time, especially during a period of declining interest rates from about 1983. Today, capital structures are several orders of magnitude more complex than they were when Volcker ran the Fed, and that toothpaste isn’t going back in the tube. Rightly or wrongly, the hope that truth in engineering could triumph over finance is of a moment.
In his acknowledgement of the primacy of finance, there are too many instances where Deming’s arguments amount to, “leave it up to the engineers, they’ll figure it out.” That argument doesn’t completely win the day because we know from experience that is not without risk: e.g., of engineers who solve the problem they want to solve rather than the problem that needs to be solved; of engineers goldplating a solution. As much as we don’t like financial controls, we all of us, including engineers, have long come to respect financial controls as valuable in containing engineering flights of fancy.
And then there is how heavily Deming trafficks in the Japanese economic miracle of the post WWII period. In the 1980s this was highly relevant, as American manufacturers felt the threat from their industrial Japanese counterparts. The narrative changed soon thereafter. Three lost decades (beginning in 1990) where per capita GDP remained stagnant in Japan while that in other economies grew significantly take the edge off the relevancy of whatever happened in the three preceding decades. Secondly, the benefits of tight coupling between suppliers and value added manufacturers Deming alludes to frequently were recast as uncompetitive and unproductive relationships under the aegis of "Japan, Inc." Suppliers had significant equity positions in downstream manufacturers, who had significant equity positions in their upstream suppliers, all of whom were substantially owned by domestic banks. Sole-supplier benefits achieved in the 1950s and 1960s through supply chain rationalization were lost as sole suppliers became captive suppliers, and commercial and operational (i.e., quality) leverage lost due to the non-negotiability of their incesutous commercial interconnectedness.
That’s a lot of words to say, the truly incredible success story that brought Deming to prominence - as a key participant in the recovery of an entire national economy - didn’t have staying power. And while he was also talking up his book of business (his prominence in the rise of Japan as an economic powerhouse and their apparent unbridled ascendency in the 1970s and 80s), having hitched his wagon, his legacy would naturally by extension rise and fall with that of his host case providers. In context, it was, and is, a legitimately good story. But the chapter one exits isn’t the end of the story everybody reads.
None of this is meant to be dismissive of Deming’s wisdom and it is a shame it is not more practically adopted. But it was fodder for the administrative class he loathed, it didn’t offer a comprehensive response to finance, and its host success story lost its way. It remains the gold standard. Through no fault of its own, it has lost some of its lustre.
The contemporary reader would assert Deming should have seen the intrinsic threats to implementing his ideas would be threats to his ideas, if for no other reason than none of these threats are new in the history of business or management. I’d like to think Deming would see the humor in amending to that conclusion, “but he was only doing his best.”