Out of the Crisis

Chain Reaction: Quality, Productivity, Lower Costs, Capture the Market
There is a stable system of trouble in a manufacturing plant. And because that system is stable, improvement of quality is the responsibility of the management.
Principles for Transformation of Western Management
Western style of management must change to halt the decline of Western industry, and to turn it upward. There are the elements of the transformation that must take place. There must be an awakening to the crisis, followed by action, management's job.
There should be some criteria by which anyone in the company may measure the performance of management. Everyone in the company should have a basis by which to answer the question: "How is our management doing?" Union leaders may ask the same question, and judge management by the same criteria.
The transformation may only be accomplishment by man, not by hardware (computers, gadgets, automation, new machinery). A company cannot buy its way into quality.
Best efforts not sufficient
Best efforts are essential. Unfortunately, best efforts, people charging this way and that way without guidance of principles, can do a lot of damage. Think of the chaos that would come if everyone did his best, not knowing what to do.
Need for consistency of effort
Suppose that (1) everybody new what to do. (2) Everybody did his best. Result: dissipation of knowledge and effort; results, far from optimum. There is no substitute for teamwork and good leaders of teams to bring consistency of effort, along with knowledge.
Guidance from questions and pronouncements of Lloyd S. Nelson
The central of management in all its aspects, including planning, procurement, manufacturing, research, sales, personnel, accounting, and law, is to understand better the meaning of variation, and to extract the information contained in variation.
If you can improve productivity, or sales, or quality, or anything else, by (e.g.) 5 percent next year without a rational plan for improvement, then why were you not doing it last year?
The most important figures needed for management of any organisation are unknown and unknowable.
In the state of statistical control, action initiated on appearance of a defect will be ineffective and will cause more trouble. What is needed is improvement of the process, by reduction of variation, or by change of level, or both. Study of the sources of product, upstream, gives powerful leverage on improvement.
Short-term profits are not a reliable indicator of performance of management. Anybody can pay dividends by deferring maintenance, cutting out research, or acquiring another company.
People that depend on dividends to live on should be concerned, not merely with the size of the dividend today, but also with the question of whether there will be dividends three years from now, five years from now, ten years from now. Management has the obligation to protect investment.
Support of top management is not sufficient
It is not enough that top management commit themselves for life to quality and productivity. They must know what it is that they are committed to – that is, what they must do. These obligations cannot be delegated. Support is not enough: action is required.
"... and if you can't come, send nobody."
These are the words in a letter that William E. Conway (president and chief executive officer of the Nashua Corporation) wrote to a vice-president in response to the latter's request for an invitation to visit the Nashua Corporation.
In other words, Mr. Conway told him, if you don't have time to do your job, there is not much that I can do for you.
A quality program for a community, launched by ceremonies with a speech by the governor, raising of flags, beating of drums, badges, all with heavy applause, is a delusion and a snare.
Condensation of the 14 Points for Management
The 14 points are the basis for transformation of American industry. It will not suffice merely to solve problems, big or little. Adoption and action on the 14 points are a signal that the management intend to stay in business and aim to protect investors and jobs. Such a system formed the basis for lessons for top management in Japan in 1950 and subsequent years.
The 14 points apply anywhere, to small organisations as well as to large ones, to the service industry as well as to manufacturing. They apply to a division within a company.
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.
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.
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.
End the practice of awarding business on the basis of price tag. Instead, minimise total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
Institute training on the job.
Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
Drive out fear, so that everyone may work effectively for the company.
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.
Eliminate slogans, exhortations, and targets for the work force asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system and thus lie beyond the power of the work force.
Eliminate work standards (quotas) on the factory floor. Substitute leadership. Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.
Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.
Institute a vigorous program of education and self-improvement.
Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job.
Diseases and Obstacles
The 14 points constitute a theory of management. Their application will transform Western style of management. Unfortunately, deadly diseases stand in the way of transformation.
There are diseases and there are obstacles. The distinction is intended to be partly in terms of difficulty of eradication and partly in terms severity of the injury inflicted.
The Deadly Diseases
Lack of constancy of purpose to plan product and service that will have a market and keep the company in business, and provide jobs.
Emphasis on short-term profits: short-term thinking (just the opposite from constancy of purpose to stay in business), fed by fear of unfriendly takeover, and by push from bankers and owners for dividends.
Evaluation of performance, merit rating, or annual review.
Mobility of management; job hopping.
Management by use only of visible figures (counting the money), with little or no consideration of figures that are unknown or unknowable.
Obstacles
Hope for instant pudding.
The supposition that solving problems, automation, gadgets, and new machinery will transform industry.
Search for examples [of success in a similar product or service].
"Our problems are different."
Obsolescence in schools. [The best way for a student to learn a skill is to go to work in some good company, under masters, and get paid while he learns.]
Poor teaching of statistical methods in industry.
Use of Military Standard 105D and other tables for acceptance.
"Our quality control department takes care of all our problems of quality."
"Our problems lie entirely in the work force."
False starts. [They give satisfaction, something to show for effort, but they lead to frustration, despair, disappointment, and delay.]
"We installed quality control." [No. You can install a new desk, or a new carpet, or a new dean, but not quality control.]
The unmanned computer.
The supposition that is only necessary to meet specifications.
The fallacy of zero defects.
Inadequate testing of prototypes.
"Anyone can comes to try to help us must understand all about our business."
Questions to Help Managers
These questions may provide to management some basis to assist their understanding of their responsibilities.
Has your company established constancy of purpose?
If yes, what is the purpose? If no, what are the obstacles?
Will this stated purpose stay fixed, or will it change as presidents come and go?
Do all employees of your company know about this stated constancy of purpose, if you have formulated one?
How many believe it to the extent that it affects their work?
Whom does your president answer to? Whom do your board of directors answer to?
Where would you wish your business to be five years from now?
How do you think you will accomplish these aims? By what method?
How may you learn whether, with respect to some quality-characteristic, you have a stable process or stable system?
If stable, where lies the main responsibility for further improvement? Why is it in this circumstance futile to plead with the plant manager, superintendents, division chiefs, and the work force, for better quality?
If not stable, what is different? What would be different about your attempt to accomplish improvement?
Have you established teams to work on each of the 14 points, and on the deadly diseases and obstacles?
How are you doing on Point 14?
What are you doing to create teamwork between purchasing and production?
Is absenteeism in your company a stable process?
How about fires?
How about accidents?
If yes, where lies the responsibility for improvement? (Answer: with the management.)
Why is transformation of management necessary for survival?
Are you creating a critical mass of people to help you to change?
Why is this critical mass necessary?
Do all levels of your management take part in the new philosophy?
Can any of them initiate proposals for consideration? Do they?
If you run a service organization:
What proportion of the people in your company knows that you have a product, that this product is service?
Does every employee know that he has a customer?
How do you define quality? How do you measure it?
Is your service better than it was a year ago? Why? How do you know?
(If yes.) Why is this?
Do you have more than one vendor for any item that you purchase repeatedly?
(If yes.) Why is this?
If you have one vendor for an item, do you have a long-term loyal relationship with him?
Is absenteeism at a stable rate?
If you run a construction company:
Is your service to your customers better than it was two years ago?
In what way?
What have you done to try to improve it?
What are you doing to create teamwork between:
design and production of product (or service)?
design and sales of product (or service)?
design and purchasing of product (or service)?
What are you doing to close the gap between design of product and service, and actual production and delivery? In other words, what are you doing to improve test of your product and your service before you go into production and delivery?
What steps are you taking to improve quality of:
incoming materials for production?
tools, machinery, and nonproductive items?
internal communications (delivery of mail, papers, telephone, telegraph)?
Does your purchasing department stick to the lowest bidder? If yes, why? And what is this policy costing you?
Does cost of use come into consideration? How?
What is your program for reduction in number of suppliers?
For four important items that you use on a regular basis, including commodities and transportation.
For each of these items, how many suppliers have you?
Now?
How many a year ago?
How many two years ago?
How many three years ago?
What is you program for developing long-term relationships of loyalty and trust with your suppliers (including commodities and transportation)?
Do your people in management receive an annual performance rating? If yes, what are you doing to supplant this system with a better plan?
Does your management know about the costs of engineering changes? What is the underlying cause of engineering changes? Do your engineers have time to do their work right in the first place? How are they rated? Do you see any problems with your system for rating your engineers? If yes, what are you planning to do about it?
Does training and retraining in any operation in your company teach the requirements of the next operation?
What proportion of your workers has a chance to understand the requirements of the next operation? Why does not everybody have an understanding of the next operation?
How would you calculate the loss from failure of everyone to have a chance to understand  the requirements of the next operation? (This is one of those unknown and unknowable figures – deadly disease No. 5).
What is your program for elimination of work-standards (numbers, measured day work on the factory floor), replacing them by competent knowledge and leadership?
Do you manage by objective? If yes, how much is this mode of management costing you? Do you understand what is wrong with this practice? What are you doing to replace it with better management?
Do you manage by numbers (require a man to improve productivity or sales by a specified amount, or to reduce scrap or payroll or expenses by some specified amount, such as 6 percent)?
Show that a figure that is forced (e.g. a requirement that the plant turns out 1200 items every day, or that a salesman is expected to take orders for $7200 per day) is not an example of a stable system. It is either meshed like gears, or the figures are adjusted through fear to meet the requirement but nothing more.
Are you changing supervision to leadership, at least in some areas of your organization?
How do you select foremen? In other words, how do your foremen come to be foremen?
What do your foremen know about the job?
Do they know how to calculate who if anybody is in need of individual help, not part of the system?
Do they know how to calculate who is outstanding, not part of the system?
What are your plans for elimination of:
piece work?
incentive pay?
Would any good accrue to the morale of the people involved if the management send a letter every month to dealers that did more than the average amount of business that month?
How may you know which ones should receive commendation?
How may you know which ones are in need of special help or special direction of some kind?
What about letters to people that fall below the average?
What is your plan and what are you doing about it for removal of barriers that rob the hourly worker of his pride of workmanship?
Do you plaster your walls with goals and exhortations? If yes, what are you doing to supplant them with news about activity of your management to reduce the barriers that rob the hourly worker of his pride of workmanship?
What steps are you taking to reduce paperwork?
What steps are you taking to reduce to one the number of signatures required for travel vouchers, payment to vendors, etc.?
What steps are you taking to reimburse straightaway the traveler for expenses incurred?
How much did you lose in the past year for mistakes in paperwork?
What is your program for development of new product and new service for the future?
How do you plan to test your new designs or ideas?
What do you know about the problems of your customers in the use of your products? What tests do you make of your products in service?
How do your customers see your product in relation to competitive products? How do you know? What data have you?
Why do they buy yours? How do you know? What data have you?
What problems or dissatisfaction do customers see in your competitors' products? How do you know? What data have you?
Will your customers of today be your customers a year hence? Two years hence?
Do your customers think that your product lives up to their expectations? What did your advertising and salesmen lead your customers to expect? More than you can deliver? How do you know?
(If applicable.) Are your customers satisfied with the service that you or your dealers provide? If yes, what is satisfactory about it? The quality of workmanship? The lag between your call and appearance of the serviceman? How do you know?
How do you distinguish between your quality as your customer perceives it and quality as you plant manager and work force perceive it?
How does the quality of your product, as your customer sees it, agree with the quality that you intended to give him?
Do you depend on complaints from customers to learn what is wrong with your product or service?
Do you depend on costs of warranty?
Why is it that customers switch?
Where lies your main chance for profit (Repeat customers.)
What must you do to hold on to a customer?
Who make the decisions about whether to buy your product?
What new design would serve better four years from now?
What inspection or verification are you carrying out:
on incoming materials?
in process?
of final product?
(Do not try to answer this question for every one of your products. Answer it for only three or four important products, or for three or four production lines.)
How reliable is your inspection at each of these points?
How do you know?
What data have you to show whether your inspectors are in line with each other?
What about your test instruments, or rather, your use of them? Can you present evidence of statistical control of the system of measurement or classification? Visually? Or by instrument?
Where is inspection being carried out where no inspection would minimize total cost?
At which points are you carrying out no inspection where you ought to carry out 100 percent inspection to minimize costs?
What records do you keep of these inspections? In what form? In the form of control charts or run charts? If not, why not?
What other use do you make of the records that you keep?
If you keep no records, why don't you?
If you keep no records at some point, why don't you cut the inspection there?
How much material that goes into the production line is used in desperation by the production manager (invariably with waste of material or rework or both)? (Try to answer the above question for two or three important production lines.) How often do you encounter examples like the following?
Material that met the specifications but was not suited to the process or to the finished product.
Inspection of incoming materials was considered to be necessary, but inspection was hurried or skipped, owing to high vacuum on the production side.
How much incoming material turns out to be totally unusable in the judgement of the production managers? (Again, answer this question only for two or tree important production lines.)
What system have you for report and correction of these problems?
What arrangements have you with your suppliers for receipt from them of evidence of statistical control, so that you may safely decrease inspection?
What cooperative work are you carrying on with your suppliers to make sure that you are both talking about the same kind of centimeter, and the same kind of test?
What are you doing to make quality (and productivity) everybody's job, including management?
Do you know the loss that ensues from a defective item or product or from a mistake at any point along the line?
Are you still using Military Standard 105D or Dodge-Roming plans for sale or for purchase of materials? Why?
What proportion of your costs is chargeable to defects inherited from previous operations?
What proportion of the troubles that you have with quality and productivity is the fault of (i) the production workers? (ii) the system (management's responsibility)? How do you know? (Answer this question for three or four main items only.)
How much loss do you attribute to handling damage (i) along the production line? (ii) in packing, transportation, installation? What data have you on these problems? What are you doing about them?
What are you doing to improve the training of new employees? What about retraining to keep up with new product and new procedures and new equipment?
Why is it that every endeavor to put out a product or service is one of a kind? (Once the plans are part way under action, subsequent changes are costly in time and money.) There is accordingly little chance for improvement, once the original plans go into action.
Why is it that lessons for training for a job, or lessons for retraining for a new job, or lessons on the piano or on the violin, are one of a kind? (A pupil once taught cannot be reconstructed.)
If you run a job shop:
Are your customers better satisfied now, one by one, than they were two years ago? Why?
How about materials and equipment? How many suppliers have you for any one type?
If more than one, why? What steps are you taking toward reduction?
How about maintenance of equipment: improving?
How about performance on the job?
How about your turnover rate?
What about repeated operations that do not change with the product: do you keep a running record and a control chart on some of them?
Are some of your problems stable? If yes, where lies the responsibility for improvement? (With the management.)
Do your people that are engaged in training understand when an employee is trained and when he is not yet trained?
Do they know that they have only one chance? That an employee once trained cannot be helped by further training in the same procedures?
Are you guilty of setting numerical goals on the factory floor for production?
If you have a competent statistician in your company, are you taking maximum use of his knowledge and ability? Is he teaching statistical thinking to your management, engineers, chemists, physicists, production workers, foremen, supervisors, purchasing agents, in your department of commercial research and design of future product? Do you send him to statistical meetings? Is he working throughout your company to find problems and to find causes and results of corrective action? Is he working on all your problems of design, quality, procurement, specifications, testing of instruments? Does he have authority and responsibility to look anywhere in the company for problems, and to work on them? If not, why not?
Are you trying to set up your statistical work in conformity with the best interests of the company?
If you have no competent statistician, what efforts are you putting forth to find one to help you with your problems of quality, productivity, procurements, redesign of product?
Do you encourage self-improvement of your people? How? In what way?
Do you have an educational program within the company?
Do you provide information to your employees about courses in local schools?
Do you run your company on visible figures alone?
If yes, why?
What steps are your management taking to learn the importance of figures unknown and unknowable?
Does your company participate in committees of standardizing bodies?
What is your company doing for the community?
Do you rid yourself of problems with people on the factory floor by establishing EI groups (Employee Involvement Groups), EPG (Employee Participation Groups), QC-Circles, QWL (Quality of Work Life), and then leave them stranded with no participation of management?
Are all activities in the company taking part in improvement? Are some lying dormant?
What steps are your taking to discover dormant areas, and to help them?
What is your understanding of a stable system?
Has some annoying problem of quality or of low productivity stabilized? How do you know? Why were efforts to bring improvement so effective and encouraging at first? Why did quality level off toward a stable system?
If a process has stabilized, whose responsibility is it to invent and apply methods and changes for improvement? (Answer: yours.)
Are you depending on EI (Employee Involvement), EPG (Employee Participation Groups), QWL (Quality of Work Life), QC-Circles, posters, exhortations, for quality, instead of doing your job?
What are you doing about quality that you hope to provide to your customers four years from now?
Quality and the Customer
There are several faces of quality.
Management's decision on specifications for the quality characteristics of parts, final product, performance, what service to offer now. The plant manager and all the people in production are concerned about the specifications of today. They have to know what their job is, now.
Management's decision on whether to plan ahead for product or service of the future.
The consumer's judgement of your product or service.
For many kinds of product and service, the consumer's judgement may require a year or even several years for formation. The purchaser of a new automobile can give you in a year from the date of purchase a more useful evaluation of the quality of the automobile then he could when it was new.
Some New Principles of Training and Leadership
The aim of leadership should be to improve the performance of man and machine, to improve quality, to increase output, and simultaneously to bring pride of workmanship to people. Put in a negative way, the aim of leadership is not merely to find and record failures of men, but to remove the causes of failure: to help people to do a better job with less effort.
A leader must learn by calculation wherever meaningful figures are at hand, or by judgement otherwise, who if any of his people lie outside the system on one side or the other, and hence are in need either of individual help or deserve recognition in some form.
The leader also has responsibility to improve the system – i.e. to make it possible, on a continuing basis, for everybody to do a better job with greater satisfaction.
A third responsibility is to accomplish ever greater and greater consistency of performance within the system, so that apparent differences between people continually diminish.
Operational Definitions, Conformance, Performance
In the opinion of many people in industry, there is nothing more important for transaction of business than use of operational definitions. It could also be said that no requirement of industry is so much neglected. One learns about operational definitions in colleges of liberal arts, in courses in philosophy and theory of knowledge, but hardly ever in schools of business or engineering in the United States. It could even be said that learning in physics, chemistry, and some natural sciences does not teach the philosophy of science.
Meaning starts with the concept, which is in somebody's mind, and only there: it is ineffable. The only communicable meaning of any word, prescription, instruction, specification, measure, attribute, regulation, law, system, edict is the record of what happens on application of a specified operation or test.
An operational definition puts communicable meaning into a concept. Adjectives like good, reliable, uniform, round, tired, safe, unsafe, unemployed have no communicable meaning until they are expressed in operational terms of sampling, test, and criterion. The concept of a definition is ineffable: it cannot be communicated to someone else. An operational definition is one that reasonable men can agree on.
An operational definition is one that people can do business with. An operational definition of safe, round, reliable, or any other quality must be communicable, with the same meaning to vendor as to purchaser, same meaning yesterday and today to the production worker. Example:
A specific test of a piece of material or an assembly.
A criterion (or criteria) for judgment.
Decision: yes or no, the object or the material did or did not meet the criterion (or criteria).
Standards and Regulations
A government regulation, and likewise an industrial standard, to be enforced, must have operational meaning. Conformance can be judged only in terms of a test and a criterion (sometimes many tests and many criteria). The criteria and tests must be in statistical terms to have a meaning. A regulation or standard that is not so expressed will be devoid of meaning. A regulation without meaning can have no legal force.
Common Causes and Special Causes of Improvement. Stable System
The central problem in management and in leadership is failure to understand the information in variation. He that possesses even a fuzzy understanding of it would understand the futility of the annual rating of performance of people as a basis for raises or for promotion. He would understand that the type of action required to reduce special causes of variation is totally different from the action required to reduce variation and faults from the system itself; would understand the capability of a process and of a system of measurement; would appreciate the necessity for statistical control of use of instruments and gauges; would understand that adjustment of an instrument to a standard should be carried out only on statistical evidence of stability of both instruments; would understand that leadership that takes aim at people that are below average in production, or above average in mistakes, is wrong, ineffective, costly to the company; that the same holds for a leader that supposes that everyone could be an achiever. He would understand why it is that costs decrease as quality improves. It is essential, however, in industry and in science to understand the distinction between a stable system and an unstable system, and how to plot points and conclude by rational methods whether they indicate a stable system. The points might show (e.g.,) weekly figures on sales, quality incoming and outgoing, complaints of customers, inventory, absenteeism, accidents, fires, accounts receivable, beneficial days.
Special causes and common causes
A fault in the interpretation of observations, seen everywhere, is to suppose that every event (defect, mistake, accident) is attributable to someone (usually the one nearest at hand), or is related to some special event. The fact is that the most troubles with service and production lie in the system.
Most troubles and most possibilities for improvement add up to proportions something like this:
94% belong to the system (responsibility of management),
6% special.
"We rely on our experience." The answer is self-incriminating: it is a guarantee that this company will continue to pile up about the same amount of trouble as in the past. Why should it change?
Experience without theory teaches nothing. In fact, experience cannot even be recorded unless there is some theory, however crude, that leads to a hypothesis and a system by which to catalog observations. Sometimes only a hunch, right or wrong, is sufficient theory to lead to useful observation.
What is the system?
To people in management, the system consists of
Management, style of
Employees – management and everybody
The people in the country
Their work experience
Their education
The unemployed
Government
Taxes
Reports
Tariffs
Impediments to trade and industry
Requirements to fill positions by quota, not by competence
Quotas for import and export
Foreign governments
Quotas for import and export
Manipulation of currency
Customers
Shareholders
Bank
Environmental constraints
Management has much power and discretion, but cannot move all the earth. To the production worker, the system is all but him.
There are two sources of loss from confusion of special causes with common causes of variation.
Ascribe a variation or a mistake to a special cause when in fact the cause belongs to the system (common causes).
Ascribe a variation or a mistake to the system (common causes) when in fact the cause was special.
Overadjustment is a common example of mistake 1. Never doing anything to try to find a special cause is a common example of mistake 2.
People are part of the system; they need help.
Organisation for Improvement of Quality and Productivity
The central problem in management, leadership, and production, is failure to understand the nature and interpretation of variation.
Efforts and methods for improvement of quality and productivity are in most companies and in most government agencies fragmented, with no overall competent guidance, no integrated system for continual improvement. Everyone, regardless of his job, needs a chance to learn and develop. In a climate of fragmentation, people go off in different directions, unaware of what other people are doing. They have no chance to work to the best advantage of the company not with themselves, and little chance to develop.
Transformation in Japan
The whole world is familiar with the miracle of Japan, and knows that the miracle started off with a concussion in 1950. Before that time, the quality of Japanese consumer goods had earned around the world a reputation for being shoddy and cheap. Yet anyone in our Navy will testify that the Japanese knew what quality is. They simply had not yet bent their efforts toward quality in international trade.
Suddenly, Japanese quality and dependability turned upward in 1950 and by 1954 had captured markets the world over. The new economic age had begun. What happened?
The answer is that top management became convinced that quality was vital for export, and that they could accomplish the switch. They learned, in conference after conference, something about their responsibilities for the achievement of this aim, and that they must take the lead in this aim. Management and factory workers put their forces together for quality and jobs.
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Contents
Chain Reaction: Quality, Productivity, Lower Costs, Capture the Market
Principles for Transformation of Western Management
Diseases and Obstacles
Questions to Help Managers
Quality and the Customer
Some New Principles of Training and Leadership
Operational Definitions, Conformance, Performance
Standards and Regulations
Common Causes and Special Causes of Improvement. Stable System
Organisation for Improvement of Quality and Productivity
Transformation in Japan