More Deming: System of Profound Knowledge

After the airing of the NBC White Paper, "If Japan Can... Why Can't We?, on June 24, 1980, W. Edwards Deming quickly went from an obscure quality and statistical consultant to a vertible business celebrity.  Because of that White Paper, Ford Motor Company engaged Deming to help them improve.  Ford was incurring billions in losses.  Product quality at Ford  was lacking both poor quality design, poor production quality. and poor product reliability. Deming is credited with contributing to Ford's improvement to become the most profitable US based auto company in a few short years.

Because of this noteriety, Deming had two books published by MIT-CAES:

1. Out of the Crisis:  In this 1982 book, Deming shared his theory of management based on his 14 Points, 7 Deadly Sins, and more.
2. The New Economics - For Industry, Government, and Education:  This 1994 book introduced Deming's System of Profound Knowledge.

In introducing the System of Profound Knowledge in Chapter 4 of The New Economics, Deming wrote:  

The prevailing style of management must undergo transformation.  A system cannot understand itself.  The transformation requires a view from the outside.  The aim of this chapter is to provide an outside view - a lens - that I call a system of profound knowledge.  It provides a map of theory by which to understand the organizations that we work in.  

The four parts of the System of Profound Knowledge are:

1. Appreciation for a system:  All work and tasks are processes.  A complex of interdependent processes is a system.  Businesses are systems.  The interdependent systems must be managed by the leadership the way a conductor leads an orchestra.  There are countless trade-offs required to achieve "optimal" results over time.  Without an aim, we will never know what to trade-off and why and we will never understand what "optimal" results are.  An appreciation for a system is esstential.  
2. Knowledge about variation:  Variation abounds in all aspects of life.  It certainly exists in all aspects of business and while we have made great strides teaching statistics in high schools and colleges, we would venture to say that we have not necessarily improved the level of statistical thinking in the workplace.   Deming quoted to mistakes that he noted in Out of the Crisis to illustrate this point in The New Economics:
   
   Mistake 1:  To react to an outcome as if it came from a special cause, when actualy it came from common causes of variation. 
   
   Mistake 2:  To treat an outcome as if it came from common causes of variation, when actually it came from a specail cause.
   
   If understanding that variation is everywhere is the cornerstone of Statistical Thinking, then knowing the difference between common and special causes of variation is the foundation.
3. Theory of knowledge:  "The theory of knowledge helps us to underatn that management in any form is prediction."  We use the predictions to make decisions.  We base the predictions and decisions as much on facts, data, and analysis is we possibly can.  The simplest maxims in this regard are that "information is not knowledge" and management opinion is probably not knowledge either.  Lastly, most predictions are based on assumptions.  We should be aware of what those assumptions are.
4. Psychology:  Organizations are made up of people.  They are run and operated by people.  People lead others.  The variation in people and how they behave and react with each other and various situations is difficult to predict.  Hence, we need to understand psychology to "understand people, the interaction between people and circumstances, interaction between customer and supplier" and etc.  

Deming believed that great leaders needed to be aware of and strive to master this System of Profound Knowledge.  We have all seen the few leaders whose mastery of this system seems to be innate.  

The rest of us?  We have to work at it.  

It is worthwhile pursuit.