In the final episode of the series, Jacob Stoller and Andrew Stotz discuss the difference between typical companies using traditional management and more successful Deming-style companies. If productivity and performance are so much better, why do companies stick with traditional management? TRANSCRIPT 0:00:02.3 Andrew Stotz: My name is Andrew Stotz, and I'll be your host as we dive deeper into the teachings of Dr. W. Edwards Deming. Today, I continue my discussion and conversation with Jacob Stoller, Shingo Prize winning author of The Lean CEO. And ladies and gentlemen, I just received my copy finally. Productivity Reimagined, it just arrived from Amazon. You can get it there. And that's the latest book that he's come out with. And this is exploring applying Lean and Deming Management Principles at the enterprise level. The topic for today is moving forward with productivity. Jacob, take it away. 0:00:41.7 Jacob Stoller: Oh, thank you, Andrew. Great to be here once again. Yeah. Moving forward. That's really Chapter 13. Whether you consider that, hopefully you consider 13 lucky as I think they do in Italy. 0:00:57.4 AS: We do in Thailand. 0:01:00.4 JS: Oh, really? Wonderful. Okay. Perfect. Anyway, so I wrote in the book, I sort of defined where we're trying to go by describing two companies; a typical company, and then the company that we would aspire to for maximum productivity. So I'm gonna read those, just to illustrate. "Company A follows traditional top-down management practices. Leaders determine how the work is to be done, and give orders to their staff accordingly. Individuals, functional groups and departments are treated as independent entities under centralized control. Pay and promotion are determined by individual performance according to a set of predetermined criteria. Employees are ranked and encouraged to compete with each other." So that's company A, your typical company, which probably comprises what percentage would you say? 90%? 95%? 0:02:03.8 AS: 97.9% 0:02:04.4 JS: Okay. Okay. Let's look at where we'd like to go from there. "Company B is managed as an interactive system where people and functional teams depend on each other. Supervisors aren't expected to have all the answers, and they rely on frontline workers to share their workplace knowledge and take an active role in improving their work processes. All employees know they are part of a team culture pursuing common goals and solving problems together to move the company forward." Okay, so that's really, that's where we wanna be. And the reason you would want to go there is because if you take those two companies and they have similar resources, similar markets, perhaps operating in similar region, company B will outproduce company A 10 times out of 10. It's a more productive model, and it's proven to work. So why don't people do it? 0:03:16.3 JS: Well, there's some thinking that gets in the way, some sort of systemic kinds of barriers that are out there. So even people who aspire to making a company better, and I think there are a lot of people out there that think that, but they run into these barriers, and I'm just gonna review them again because we've gone through them in some detail. But the myth of segmented success, that's the really kind of the exact opposite of a company as a system. It's this idea that all the parts are interchangeable. You can take a department, you can give each department separate goals, and they'll all make their goals and it'll all add up. That's the myth, of course. So the myth of segmented success. We have really stemming out of that the myth of the bottom line. 0:04:11.9 JS: And because of that segmented structure, we believe that we can use finance as a proxy for all the quantitative, all the accomplishments of all these different segments. It all adds up. It's arithmetic. We figure, so why not? We just take, everyone makes their numbers, and then they all make their numbers and they all celebrate together. That's the myth, of course. The bottom line doesn't tell you what's really going on in the company. The top-down knowledge myth they run into, and that's this whole idea that managers are supposed to know all the answers, and their job is to tell people what to do. And it's not just people with MBAs. It's people with degrees in psychology and maybe working in HR. It's engineers, it's any person with professional training, figures that they have not only the privilege, but a duty to actually tell people what to do. And if I'm not telling people what to do, I'm probably not doing my job and somebody's going to be looking over my shoulder. So a big fear around that. 0:05:31.6 JS: Myth number four is the myth of sticks and carrots. And this is this idea of Homo Economicus, the idea that people act in their own financial interest and it's perfectly predictable. Performance is down? Well, let's just pay them more or maybe we need some threats here. Maybe we need to threaten them, or maybe we need to get some competition. So somebody is gonna be a little bit worried looking over their shoulder that they might get fired. Fear is a big factor here, obviously. Finally, there's the myth of tech omnipotence. And this stems right from the myth of segmented success. This idea we can take a process and we can swap out technology, we can put in technology and swap out people. We can reduce head count by 5, 10, 15 people and put in a machine in its place. That's been the business case for technology for decades. And we still have a very strong belief in that. So that's kind of what we're stuck with, those myths. And we really have to crush those myths as we go along. 0:06:42.5 AS: You know, Jacob, I was just at a meeting yesterday with a very senior executive at a very large company in Thailand. And I was just talking to him, it's off the record, so we were just chatting, but he was talking about the challenges that they're facing, and I said, so how are your KPIs? And he said, KPIs are just killing us. They're causing us to be siloed. It's setting up competition in the company. People can't work together. And I asked him this question, like, what can you do about it? He says, not much. What am I gonna do? Remove the KPI system? No. We know... 0:07:31.1 JS: Isn't that interesting? 0:07:34.8 AS: That ultimately that's probably one of the best things that they could do and get people to work together. But it just, you know, he said something to me that just made me think about, for the listeners and the viewers out there who are running small and medium-sized businesses who feel disadvantaged so many times when they're fighting against the big giants... 0:07:53.6 JS: Yeah. 0:07:53.6 AS: Take comfort that you can change your business. But many of these big companies, they just can't. And they won't. 0:08:01.2 JS: Yeah. 0:08:03.5 AS: And they never will. So that's what's so great about these types of principles, both Lean, what you're talking about, Deming, is that if you're a business owner, it's a family business, it's your private business or a group of people that you have real control over the business, you can implement these things. And you can build your business to be great. 0:08:23.7 JS: That's interesting, Andrew. I've talked in my book, I've talked with some smaller manufacturers, and at least a couple of them have said they're getting refugees from large corporations. And he'll interview these people and say, well, I can't give you, you know, you won't have 500 people reporting to you or anything. And they say, I don't care. I said, I really, you know, I've had it with this corporate stuff, and they want to be part of a culture that makes a difference. And so that's maybe catching on. I mean, interesting that the gentleman you're talking with also recognized that. 0:09:00.3 AS: Yeah. And he's just as, his hands are tied in some ways. And, so, but that to me is hopeful for the rest of the businesses that can change. And the other thing I was, you know, I always end with my favorite quote from Dr. Deming, which is that people are entitled to joy in work. Yesterday I was speaking to about 75 students in my Ethics in Finance class, and it's the kickoff day. And so it's a real fun, and I talk about a bunch of things, but the one thing I said is that ever since I graduated from university, all I really wanted was a job that I enjoyed, at a place that I enjoyed doing it, with the people I enjoyed doing it with. That's all I wanted. I wanted joy in work and I got it because I walked away from the places and the people where it wasn't happening, and I walked towards the places where I had the opportunity to enjoy it. Of course it helps that I found my love, which is being a financial analyst. It's just, I understand that so well, but this is where I think I want us to think about hope and potential for happiness in work and all of that. And so I know you've got some more steps that you've got to help people. So maybe we move into that. 0:10:27.7 JS: Sure. Sure. Well, and it would be interesting, this gentleman you talked with, I wonder if he's visited any companies that we would admire that are using Deming principles, or maybe... 0:10:39.1 AS: Well, it may give it away, but this company in the past has fully implemented the teachings of Dr. Deming. 0:10:49.2 JS: Oh, really? 0:10:51.5 AS: But they had a changeover in management, and they completely walked away from this and implemented the KPI system. 0:11:00.9 JS: Yeah. Oh my. Isn't that something? Yeah, that happens. That happens for sure. And we've had, you know, in my last book, The Lean CEO, I found some people, number of companies had fallen off the ladder. And gosh, the Shingo Institute had a real problem with that. People were winning Shingo prizes and then they were falling off the ladder, and they changed their emphasis on criteria now, and now they really emphasize culture. You can't just follow the principles, but you really have to get the culture, and they really grill them on that. So, interesting. Interesting. 0:11:38.2 AS: Yeah. 0:11:41.0 JS: But the first step, the reason I asked you if they've visited anybody is really, I think if you're starting from scratch at company A, I think the first thing is to go visit companies. 0:11:48.6 AS: Yep. 0:11:49.5 JS: I mean, you've got to see what's going on in companies that are different to even appreciate what's possible. And it's... 0:12:00.6 AS: 'Cause it's inspiring. 0:12:00.7 JS: It's not only inspiring, but you see things that you wouldn't expect to see. And I think what they said, what these folks have told me over and over again is that what you see is you actually feel it. There's a culture in there, there's a kind of an atmosphere when you walk in the door. And that's what really wows people. I hear that over and over again. So you have to feel that, you can't write that down, or you can't explain that in a talk. So I think that's really the first step. And fortunately, companies that have gone through these transformations are happy to welcome people to come visit, because it helps them reinforce their culture as well. So it's a reinforcing kind of thing. I think after you've done that, gone the rounds a bit, that's when you really need to assess where you are and what you wanna be. And I think there has to be some honest criticism about the kind of company you are. I don't know if you wanna call it soul-searching, but there's not a realization that we don't wanna go on as we were, you're really not gonna do much. So that's, I think, critically important. You're smiling. Do you have a story there? 0:13:20.8 AS: No, but I'm just, you know, it makes sense. It makes sense. I did actually, you know, in Thailand there was a company that I saw in the newspaper many years ago that it came out in the newspaper that they won the Deming Prize from Japan, from the Union of Scientists in Japan. And so I just called the company and I said, congratulations. And they said, great, thank you. And then I said, and I talked to the CEO of the company, and then I said, could I bring my staff from my coffee, you know, management team from the coffee business to come and see you guys? And he said, yeah. And that started a lifelong friendship with a guy named Srini, who was the guy who won that. He passed away about a year or two ago. And I featured him in my book on Transform Your Business with Dr. Deming's 14 Points. But the idea is... 0:14:11.0 JS: Oh yeah... 0:14:12.7 AS: Go out and... 0:14:14.0 JS: I love that book. 0:14:16.2 AS: Explore and see it, see what's out there. 0:14:16.3 JS: Yeah. For sure. 0:14:17.5 AS: Because you also, when you go out and explore, you also find out, hey, we're pretty good at some of these things and there's things that we're doing well, you know? 0:14:23.5 JS: Of course, of course. So once you've assessed your state, I think it's very, very important, even before you start talking to your people, 'cause it's gonna be a transformation, you're gonna demand an awful lot from your people, you've really got to know where you're going, and you have to establish a vision. And companies have different ways of doing that. But the one thing I would emphasize is that it's gotta be a vision with substance. And I think Dr. Deming would say, by what method? [laughter] You say where you're going. Right? So, for example, a hospital. I saw a hospital that did a very good job of that, establishing a vision, and they wanted to be the safest and most compassionate hospital in their region. They said, well, what would that look like? 0:15:13.3 JS: And they looked at, well, okay, safety would obviously be big. There would be fiscal responsibility. Wait time is a big issue in healthcare, be no waiting. I think there may have been one more as well. But anyway, they established these kinds of what I would call aspirational goals. It's where we, really where we want to be, and it's gotta be something that inspires employees, right? You wanna be a compassionate, safe place for patients to come. I mean, that's what people want. So then what they do is they took it a level down, and they said, okay, well, if we're going to have an exemplary safety record, what would that look like? How would we measure it? And they have safe... The health organizations have safety statistics. So, they have an institution, that third party organization that would report on the numbers, so they could set some targets according to that. And then they go down even further. They say, okay, safety. What are the things that we need to do? What are some of our weaknesses? So they say, well, patient falls was one of them. They have things like medication error, hospital acquired illnesses. So all this goes under the idea of no harm to patients, right? 0:16:44.0 AS: Yeah. 0:16:45.3 JS: All goes together. So, they then started to work on the most pressing one. You know, work on targets, do projects together, PDSA kinds of projects. And they chipped away at it and eventually with a number of projects, they were very successful. But I think the key, of course, is that problems in workplaces and hospitals, maybe especially, are very granular in lots and lots of things, so you need all hands on deck. But they were very, very successful at getting a very high rating just through these efforts. So, that's... [overlapping conversation] 0:17:28.8 AS: Yeah, the vision with substance is a great one because I think lots of visions are flaky, and we've been working on the vision for Coffee Works, for my company, and that is we supply coffee to every leading brand in Thailand. And that's something that we can visualize, the employees can visualize, they can also see who we don't serve. And also when we lose a customer that's a leading brand, we can say we messed up, but when your contract's up with our competitor, we're gonna be back because we supply every leading brand in Thailand. 0:18:08.0 JS: Right, right. 0:18:10.3 AS: So, substance, vision. Yep. 0:18:13.3 JS: Yeah, definitely. Yeah. And I guess you share that, been sharing that kind of vision with your people for a long time, right? 0:18:18.3 AS: Yep. 0:18:21.6 JS: But I mean, would you say, how important would you say vision is? I mean... 0:18:23.2 AS: I think it's critical. And I think that part of what happens is that many companies start with a vision, and then they get, it's just so easy to get distracted. And there's so many, you know, business just grows complex, and then all of a sudden you feel like, we can do all of this, we can do this, we can do that, we can do this, we can do that. The best book on this is Good Strategy Bad Strategy by Richard Rumelt. And he talks a lot about what are bad strategies, and he talks about these fluffy visions that really don't help anybody. And so getting a vision with substance, I think is critical. 0:18:58.0 JS: Okay. So we got our vision, it's got real teeth. It's something that we can stand in front of our people and say, here's what we're going to do. And they won't say, oh, this is just another flavor of the month. They'll realize that we're serious and we're gonna do this. The next step, number four, is building trust. And that's extremely important. And one of the manufacturer actually told me a wonderful story about this. He was working in a very... Had a plant in a very rough neighborhood in Baltimore. And when he took over that plant as a general manager, there was terrible culture. People were... He said there was racism and there were just people quitting all the time. And just walking out the door, not showing up to work. You know, the workers hated management. 0:19:56.7 JS: So this guy went in onto the shop floors. I'm your new general manager. And he said he spent the first three or four months just talking to them about their lives. You know, he was committed to the Lean methodology, but he didn't talk about methods, how we're gonna do things different. He just found out what's important to these people. And a lot of 'em were financially strapped. They were in poor neighborhoods. So the direction was really how to make this company more profitable so we can pay you more. And that was kind of a guiding vision and remarkably successful how it did. How he won the people over. And I think there's so many people out there asking people to do things. And, you know, you really have to... Takes a lot of trust. I mean, you're gonna say, I'm gonna admit when I've made a mistake, I'm not gonna cover it up and you're not gonna fire me. You know, that's never happened. So... 0:21:02.9 AS: And I can tell you, for the listeners and the viewers out there, here's a good inspiring movie to get you an idea of thinking about how to get out on the shop floor and understand from the inside what's happening in the business. And the movie came out in 1980, and it's called Brubaker by Robert Redford. And it's the story of a new prisoner warden. 0:21:25.2 JS: Oh, I never saw it. 0:21:27.0 AS: Yeah. Prison warden who goes in as a prisoner, and the governor of the state has sent him in as a prisoner. And so he lives a prisoner's life for, I don't know how long it was, a week, a couple weeks, a month, until eventually he, you know, reveals himself and then takes over. And then he knew all the corruption and all the problems and all the issues, and he went about solving 'em. It's an inspiring movie. 0:21:54.2 JS: Yeah. And more recently, there was a program, I've seen a couple of episodes of Undercover CEO, you know, where CEO actually goes into the workplace in disguise and flips burgers or whatever. And then discovers what's really going on in the company. 0:22:09.2 AS: Yeah, that's a great. That's probably even more applicable. 0:22:11.2 JS: Yeah. Right. So building trust is just... It's very personal. And from that point, you start to make changes. But those changes... My favorite examples, I don't know if this is a general rule, but some of the best examples I've seen are working on safety. You work on safety because improving processes to make them safer is actually kind of like a gateway drug to doing continuous improvement, right? You start to understand what processes are, but first of all, people are improving the process in their own interest. 0:22:50.8 AS: Yep. 0:22:52.2 JS: So you get them very good at making these changes, proposing changes, speaking out, pointing out when other people are not following safety guidelines. Understanding that something has to stop when safety is not there. No, you build on the trust you created and you start to change the culture around that. So that's number five. So you notice I've gone five steps and we haven't introduced any methods or anything. You know, it's... 0:23:23.8 AS: What I noticed from those first five is that they're really all things that senior management need to do before they go out with all their exciting new ideas and start training people and start really bringing that out in a much more aggressive way. 0:23:41.5 JS: Exactly. So really step six is train and transform. And that's when we do all the... That's when we draw the diagrams, and that's when we start the PDSA training or the Kaizen events or whichever type of transformation you're doing. That's when we start to train the workforce and we start to undergo the transformation. So that's all the work, but the transforming work. But we've done enormous preparation before we get there. And I think that's what I've seen is the best way to do it. So we train and transform, and then of course we have to remove barriers as they come. So it might be removing some aspects of the accounting system because they might be holding us back. So you run into the barriers and you take on those barriers as you run into them and you build momentum. 0:24:36.3 AS: Yep. 0:24:38.6 JS: So step seven really is you're building this momentum and you raise the bar. You've done something and now you raise your standards and continue to raise them. And that leads you to a continually improving organization where you're always expecting to get better. People have a joy in work because they know that they're part of making something better. And you continue raising the bar 'cause people like a challenge. 0:25:07.9 AS: Yep. 0:25:08.5 JS: As long as it's a safe environment and as long as it's a team kind of self-supporting workplace. So finally we get to share and learn. So we've gone full circle. You know, you've got... You've gone through a transformation, you're proud of your work, and you start to open the door to visitors because that's where you really reinforce the culture. And, I don't know, you have... You say you have visitors at the coffee place? 0:25:45.9 AS: Yeah. I mean, for me, I just love going to companies that do like to share and learn. And I like to do that too. We get students, a lot of times it'll be like executive MBA students coming to Thailand and others that I'll bring out to the factory, so to get them to see how we do things. But I just personally love to... Well, it's great when you go out to a place, and there's a lot of factories in Thailand for sure where you can just see that they have a vision of what they're doing and they clearly communicate it. I had a company that I saw in the financial data many years ago when I was an analyst that really did something very odd, which was their cash conversion cycle was negative. Normally it's a positive thing for a manufacturing company 'cause they have a lot of inventory and accounts receivable and the like. 0:26:34.9 AS: And so I went out and I met with the CEO and then I said, how did you do this? He said, it took us five years, but we brought our inventory down to seven days of inventory. And how did you do it? And he took me out on the factory floor to meet all the different people doing it. And he said, I put people in teams and they work together and they try to figure out how do we reduce the inventory here? I help them see the overhead cost that's coming from the executives so they could calculate a P&L and understand like, how can they make their section, you know, better? And then he had some of the guys come and speak and explain what they were doing, some of the supervisors and managers on the shop floor. And I was like, wow, this was impressive. So love that sharing and learning. 0:27:22.7 JS: Yeah. No, it's great. And I've had wonderful visits where people are so excited about their work that you think, wow. And of course that means they're really, really productive. I mean, they just... They're doing it because they love it and it's... You can't compare with that kind of creativity that you get from that. So I guess that I'd like to talk a little about the competitive advantages here of taking this journey and, you know, that's the whole point. Productivity becomes your competitive advantage. You outproduce other companies with similar resources. And I believe that the way the world is changing right now, that competitive advantage for company B type companies is going to grow as things... And I have four reasons I cite for that. 0:28:21.0 JS: Reason one is flexibility, adaptability, agility, whatever you wanna call it. You know, we're going with manufacturing and services too much more into high mix, low volume type scenarios. So the mass production machinery approach has just become less and less relevant to manufacturing and also with services as well because it's not... It's less a ones size fits all kinda world. That's one very strong reason. The ability to hire talent. You know, we're just starting to see that. You know, people don't wanna work for these corporations that they feel don't have purpose. And couple of manufacturers actually told me, and this is in the US, I don't know how that compares with Thailand, but in the US he said there's a real crisis not just 'cause people maybe don't have jobs, but because people don't have purpose in their work, so people go home depressed, they take drugs and they've done medical studies on this. 0:29:30.3 JS: You know, if you don't have purpose in your work and you're doing something even though you know it's dumb and you're doing it anyway, just, you know, because to please the boss or whatever, that places huge stress on people. And there are actually medical... They've done medical studies on that, people who work in those kinds of jobs, on the negative effects. So anyway, I think getting the best talent, I hear that more and more anyone I talk to, and I think that's gonna be more and more of a factor. There's a whole deglobalization process going on right now. A lot of reshoring here in North America. People, you know, companies really realizing that sort of the fallacy of having these very, very long supply chains. So it's all about now shortening that supply chain, having immediate suppliers that are close. 0:30:23.9 JS: I mean, that's the only way you're gonna get your inventory turns down to 50 or whatever your friend was talking about. Right? And finally on climate change, that's getting tougher and tougher to deal with. And it's not just about governments not acting, but it's going to be scarcity of resources. It's going to be having to run businesses in difficult climate circumstances. It's gonna be government regulation. It's going to be whether people will come and work for companies that aren't making... Doing their bit to combat this. So those four reasons, I think that's a competitive advantage that's going to grow. And I think it's urgent that corporations act, and Dr. Deming warned that there'd be a crisis coming if companies kept running the way they were, and the crisis is here. We've arrived and, you know, the statistics are terrible. Don't have to bore you with those, but, you know, it's a very rough world and we need, obviously governments will have to act, but we need better companies. Now... Sorry, go ahead. 0:31:48.2 AS: I was... Yeah, that's why he entitled this book Out of the Crisis 'cause there was a crisis then, and the fact is there's still, and it's so many things are harder too particularly in the US with reshoring and that type of thing because education has been decimated also in the US so it's very hard to bring back, you know, engineering prowess and things like that, so. Yep. 0:32:14.1 JS: Yeah, for sure. So I... My sort of wrap up comment would be, answer to your question, not really a question, but your title, you talked about boosting Lean with Deming. So, you know, when we chat about this, but you know what, I was thinking about this, what as a person who wrote about Lean initially and then took a much deeper dive into Deming, what does Deming add, from my perspective? And what excites me the most about Dr. Deming is that I think he was less interested in maybe methods and more interested in fundamental truths. I mean, he really, I think put forward what are really fundamental truths about people, about the physical world and about how people in the physical world interact. And these are, like I say, this is not slogans or anything like this, this is science. I mean, these are proven scientific principles and I think those principles underline any method you use. You know, if you're really following that. And I'm not a Deming scholar enough to be able to say that that's what he meant by profound knowledge. But when you use the term profound knowledge, that's what that means to me. It means just a very fundamental knowledge of the way things work. 0:33:49.8 AS: Yeah. Well, it's exciting to think about how we can learn from what you've written about and what you've talked about. So ladies and gentlemen, the book is Productivity Reimagined: Shattering Performance Myths to Achieve Sustainable Growth. And I've really enjoyed our time, Jacob, to go through all the different myths and to hear the way you look at things which is coming from your direction originally, the Lean direction, and then bringing that thinking together with the teachings of Dr. Deming. So I just wanna thank you and give you the last word. If you'd like to wrap up for the listeners and the viewers to say, what's the main message you wanna get, want them to get out of all the... Out of the book and out of all of our discussion? How would you wrap it up? 0:34:45.4 JS: I would wrap it up by saying, let's look for those fundamental truths. You know, let's not look for slogans, let's not look for techniques. Let's look at what's really true about humans, about the physical world, and let's build our future based on that. 0:35:04.2 AS: Well, Jacob, on behalf of everyone at the Deming Institute, I wanna thank you again for this discussion right now and the prior discussions about each part of your book and the myths and the like. And for listeners, remember to go to deming.org to continue your journey, and you can find Jacob's book, Productivity Reimagined, at jacobstoller.com. This is your host, Andrew Stotz, and I'll leave you with one of my favorite quotes from Dr. Deming, "People are entitled to joy in work."