Sixty Years of Deming and American Managers Forgot to Pay Attention

Note from Art: this distinctly non-holiday post couldn’t wait for a better time.  There’s no time like the present for leaders and managers to be thinking deeply about their businesses and the road ahead.

Dr. Deming once stated that he hoped one of his life’s accomplishments was to keep American companies from committing suicide.  The public spectacle of Detroit and Wall Street committing suicide in the same quarter would indicate that he failed in his mission.

The site of these firms begging in the streets for alms from taxpayers is nauseating.  The impact that this gross mismanagement of the grandest kind is having on the welfare of American workers and families is also sickening.

Deming spoke, taught and wrote about what we should be doing.  He was clear in his belief that the U.S. was the “single most under-developed country in the world,” principally due to our philosophically bankrupt leadership and business management approaches.

He talked to many of the leaders in the U.S. auto industry. He described a theory of management that if adhered to, would cure U.S. firms of the “Deadly Diseases” of traditional U.S. management practices.  These were the very diseases that got automakers and so many other firms in such big trouble to begin with.  Short-term thinking, ego, false leadership models, lack of constancy of purpose and so many others that are in plain sight for all to see and fix.

From the ashes of World War II, Japanese leaders and managers worked to develop a new style of management.  This tiny country (in land mass) with no natural resource other than a motivated workforce and leaders and managers relentless in pursuit of quality and collective prosperity, rose in a few short decades from laughingstock to the world’s second largest economy.  Peel back the layers of Japanese success and you will find Deming at the center.

Deming’s Theory of Profound Knowledge and 14 points offered (and still do) keys to many of the answers.  They are not prescriptive, but rather they combine to create a philosophical approach to running a business, that if adhered to, will stand a chance of succeeding for customers, workers and partners on a global stage.

We now face the daunting task of regenerating our economy.  All of us that work, manage and lead have an opportunity to contribute.  While our ashes are paper and not buildings like Japan in 1950, the situation is just as dire.

One reader mentioned in an earlier post of mine that it was interesting how Deming was rolled out when things got bad.  My perspective: it’s interesting how we paid him lip-service when we should have worked to understand, adapt and apply his principles.

Dr. Deming saw that much of American industry had sown the seeds of its own demise in flawed management practices, even when times and numbers looked good.  If you are looking for ideas during this time of trouble, Deming’s philosophy of management is a good place to start.

*Suggested reading:  Out of the Crisis, W. Edwards Deming

Looking for Leadership Lessons in the Wake of Wall Street Crisis

The greatest spectator sport available the past few weekends has been the systematic dismantling and reassembly (of sorts) of many of America’s financial icons and of America's capital markets. 

In case the return of college and pro football the last few weekends kept you from paying attention to the financial news, the American financial infrastructure (or at least the world’s confidence in the American financial infrastructure) has teetered on the brink of disaster.  Last weekend, the U.S. effectively bailed out the FNMA and Freddie Mac and this weekend, we watched as Lehman Bros. was sent into oblivion, Merrill Lynch was sold (at 66% less than a reported buy-out offer in 2007) and AIG, the venerable insurance giant scrambled for liquidity.

I’ve chatted with a number of my financial friends and I ask my naïve and still unanswered question: “How did this happen?  After receiving some elegant explanations backed by all sorts of terms like derivatives and mortgage backed securities etc., etc., I invariably derail the discussion by saying, “Oh, so you’re saying that greed run amuck is at the root of this problem.”  I’ve yet to receive anything other than shoulder shrugs and comments like,  “Yeah, that’s the bottom line.”  And while we should take comfort in the fact that humans are at least predictable and consistent, I’m still left wondering where the true leaders were during the build-up of this mortgage-backed house of cards.

I’m left wondering how some of the world’s supposedly smartest and best educated professionals managing the firms that have created the world’s most effective, efficient and liquid capital markets allowed this mortgage-driven disaster to systematically destroy confidence and credibility in their firms and in large part, in the U.S. financial system.  What happened to risk management?  Heck, what happened to sanity? 

Where were the leaders making the hard calls on their firm’s activities?  Whose job was it to take away the punch bowl? How did the activities of quasi-public and private but accountable publicly traded institutions seemingly operate in a black box?  Who was writing and approving the compensation plans that said that the laws of finance and risk were suspended and it was everyone’s right to crank up the money machine.  Who forgot to highlight that there are no money machines?  Where was the accountability?

The Bottom-Line for Now:

While leadership on Wall Street seems to have taken most of the decade off, there are some remarkable opportunities for new leaders to stand up, deal with the crisis and begin restoring confidence by imposing accountability and sanity on their practices.  Additionally, the tendency of society and government will be to potentially move too far in the wrong direction towards regulation and governmental intervention.  The credibility and ultimately the liquidity afforded by the American capital markets are at stake.  The implications for global economic health are significant the implications for health on Main Street profound.  While I take comfort in my naïve faith in the long-term survival and success of a free market system, prudent and deliberate leadership is required to keep this system free and effective.