Category Archives: Operational excellence

The dark side of discipline

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W Edwards Deming was very impressed with Japanese railways. In Out of the Crisis (1986) he wrote this.

The economy of a single plan that will work is obvious. As an example, may I cite a proposed itinerary in Japan:

          1725 h Leave Taku City.
          1923 h Arrive Hakata.
Change trains.
          1924 h Leave Hakata [for Osaka, at 210 km/hr]

Only one minute to change trains? You don’t need a whole minute. You will have 30 seconds left over. No alternate plan was necessary.

My friend Bob King … while in Japan in November 1983 received these instructions to reach by train a company that he was to visit.

          0903 h Board the train. Pay no attention to trains at 0858, 0901.
          0957 h Off.

No further instruction was needed.

Deming seemed to assume that these outcomes were delivered by a capable and, moreover, stable system. That may well have been the case in 1983. However, by 2005 matters had drifted.

Aftermath of the Amagasaki rail crashThe other night I watched, recorded from the BBC, the documentary Brakeless: Why Trains Crash about the Amagasaki rail crash on 25 April 2005. I fear that it is no longer available in BBC iPlayer. However, most of the documentaries in this BBC Storyville strand are independently produced and usually have some limited theatrical release or are available elsewhere. I now see that the documentary is available here on Dailymotion.

The documentary painted a system of “discipline” on the railway where drivers were held directly responsible for outcomes, overridingly punctuality. This was not a documentary aimed at engineers but the first thing missing for me was any risk assessment of the way the railway was run. Perhaps it was there but it is difficult to see what thought process would lead to a failure to mitigate the risks of production pressures.

However, beyond that, for me the documentary raised some important issues of process discipline. We must be very careful when we make anyone working within a process responsible for its outputs. That sounds a strange thing to say but Paul Jennings at Rolls-Royce always used to remind me You can’t work on outcomes.

The difficulty that the Amagasaki train drivers had was that the railway was inherently subject to sources of variation over which the drivers had no control. In the face of those sources of variation, they were pressured to maintain the discipline of a punctual timetable. They way they did that was to transgress other dimensions of process discipline, in the Amagasaki case, speed limits.

Anybody at work must diligently follow the process given to them. But if that process does not deliver the intended outcome then that is the responsibility of the manager who owns the process, not the worker. When a worker, with the best of intentions, seeks independently to modify the process, they are in a poor position, constrained as they are by their own bounded rationality. They will inevitably by trapped by System 1 thinking.

Of course, it is great when workers can get involved with the manager’s efforts to align the voice of the process with the voice of the customer. However, the experimentation stops when they start operating the process live.

Fundamentally, it is a moral certainty that purblind pursuit of a target will lead to over-adjustment by the worker, what Deming called “tampering”. That in turn leads to increased costs, aggravated risk and vitiated consumer satisfaction.

Target and the Targeteers

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This blog appeared on the Royal Statistical Society website Statslife on 29 May 2014

DartboardJohn Pullinger, newly appointed head of the UK Statistics Authority, has given a trenchant warning about the “unsophisticated” use of targets. As reported in The Times (London) (“Targets could be skewing the truth, statistics chief warns”, 26 May 2014 – paywall) he cautions:

Anywhere we have had targets, there is a danger that they become an end in themselves and people lose sight of what they’re trying to achieve. We have numbers everywhere but haven’t been well enough schooled on how to use them and that’s where problems occur.

He goes on.

The whole point of all these things is to change behaviour. The trick is to have a sophisticated understanding of what will happen when you put these things out.

Pullinger makes it clear that he is no opponent of targets, but that in the hands of the unskilled they can create perverse incentives, encouraging behaviour that distorts the system they sought to control and frustrating the very improvement they were implemented to achieve.

For example, two train companies are being assessed by the regulator for punctuality. A train is defined as “on-time” if it arrives within 5 minutes of schedule. The target is 95% punctuality.
TrainTargets
Evidently, simple management by target fails to reveal that Company 1 is doing better than Company 2 in offering a punctual service to its passengers. A simple statement of “95% punctuality (punctuality defined as arriving within 5 minutes of timetable)” discards much of the information in the data.

Further, when presented with a train that has slipped outside the 5 minute tolerance, a manager held solely to the target of 95% has no incentive to stop the late train from slipping even further behind. Certainly, if it puts further trains at risk of lateness, there will always be a temptation to strip it of all priority. Here, the target is not only a barrier to effective measurement and improvement, it is a threat to the proper operation of the railway. That is the point that Pullinger was seeking to make about the behaviour induced by the target.

And again, targets often provide only a “snapshot” rather than the “video” that discloses the information in the data that can be used for planning and managing an enterprise.

I am glad that Pullinger was not hesitant to remind users that proper deployment of system measurement requires an appreciation of psychology. Nobel Laureate psychologist Daniel Kahneman warns of the inherent human trait of thinking that What you see is all there is (WYSIATI). On their own, targets do little to guard against such bounded rationality.

In support of a corporate programme of improvement and integrated in a culture of rigorous data criticism, targets have manifest benefits. They communicate improvement priorities. They build confidence between interfacing processes. They provide constraints and parameters that prevent the system causing harm. Harm to others or harm to itself. What is important is that the targets do not become a shield to weak managers who wish to hide their lack of understanding of their own processes behind the defence that “all targets were met”.

However, all that requires some sophistication in approach. I think the following points provide a basis for auditing how an organisation is using targets.

Risk assessment

Targets should be risk assessed, anticipating realistic psychology and envisaging the range of behaviours the targets are likely to catalyse.

Customer focus

Anyone tasked with operating to a target should be periodically challenged with a review of the Voice of the Customer and how their own role contributes to the organisational system. The target is only an aid to the continual improvement of the alignment between the Voice of the Process and the Voice of the Customer. That is the only game in town.

Borrowed validation

Any organisation of any size will usually have independent data of sufficient borrowing strength to support mutual validation. There was a very good recent example of this in the UK where falling crime statistics, about which the public were rightly cynical and incredulous, were effectively validated by data collection from hospital emergency departments (Violent crime in England and Wales falls again, A&E data shows).

Over-adjustment

Mechanisms must be in place to deter over-adjustment, what W Edwards Deming called “tampering”, where naïve pursuit of a target adds variation and degrades performance.

Discipline

Employees must be left in no doubt that lack of care in maintaining the integrity of the organisational system and pursuing customer excellence will not be excused by mere adherence to a target, no matter how heroic.

Targets are for the guidance of the wise. To regard them as anything else is to ask them to do too much.

Deconstructing Deming III – Cease reliance on inspection

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3. Cease dependence on inspection to achieve quality. Eliminate the need for massive inspection by building quality into the product in the first place.

W Edwards Deming Point 3 of Deming’s 14 Points. This at least cannot be controversial. For me it goes to the heart of Deming’s thinking.

The point is that every defective item produced (or defective service delivered) has taken cash from the pockets of customers or shareholders. They should be more angry. One day they will be. Inputs have been purchased with their cash, their resources have been deployed to transform the inputs and they will get nothing back in return. They will even face the costs of disposing of the scrap, especially if it is environmentally noxious.

That you have an efficient system for segregating non-conforming from conforming is unimpressive. That you spend even more of other people’s money reworking the product ought to be a matter of shame. Lean Six Sigma practitioners often talk of the hidden factory where the rework takes place. A factory hidden out of embarrassment. The costs remain whether you recognise them or not. Segregation is still more problematic in service industries.

The insight is not unique to Deming. This is a common theme in Lean, Six Sigma, Theory of Constraints and other approaches to operational excellence. However, Deming elucidated the profound statistical truths that belie the superficial effectiveness of inspection.

Inspection is inefficient

When I used to work in the railway industry I was once asked to look at what percentage of signalling scheme designs needed to be rechecked to defend against the danger of a logical error creeping through. The problem requires a simple application of Bayes’ theorem. I was rather taken aback at the result. There were only two strategies that made sense: recheck everything or recheck nothing. I didn’t at that point realise that this is a standard statistical result in inspection theory. For a wide class of real world situations, where the objective is to segregate non-conforming from conforming, the only sensible sampling schemes are 100% or 0%.

Where the inspection technique is destructive, such as a weld strength test, there really is only one option.

Inspection is ineffective

All inspection methods are imperfect. There will be false-positives and false-negatives. You will spend some money scrapping product you could have sold for cash. Some defective product will escape onto the market. Can you think of any examples in your own experience? Further, some of the conforming product will be only marginally conforming. It won’t delight the customer.

So build quality into the product

… and the process for producing the product (or delivering the service). Deming was a champion of the engineering philosophy of Genechi Taguchi who put forward a three-stage approach for achieving, what he called, off-line quality control.

  1. System design – in developing a product (or process) concept think about how variation in inputs and environment will affect performance. Choose concepts that are robust against sources of variation that are difficult or costly to control.
  2. Parameter design – choose product dimensions and process settings that minimise the sensitivity of performance to variation.
  3. Tolerance design – work out the residual sources of variation to which performance remains sensitive. Develop control plans for measuring, managing and continually reducing such variation.

Is there now no need to measure?

Conventional inspection aimed at approving or condemning a completed batch of output. The only thing of interest was the product and whether it conformed. Action would be taken on the batch. Deming called the application of statistics to such problems an enumerative study.

But the thing managers really need to know about is future outcomes and how they will be influenced by present decisions. There is no way of sampling the future. So sampling of the past has to go beyond mere characterisation and quantification of the outcomes. You are stuck with those and will have to take the consequences one way or another. Sampling (of the past) has to aim principally at understanding the causes of those historic outcomes. Only that enables managers to take a view on whether those causes will persist in the future, in what way they might change and how they might be adjusted. This is what Deming called an analytic study.

Essential to the ability to project data into the future is the recognition of common and special causes of variation. Only when managers are confident in thinking and speaking in those terms will their organisations have a sound basis for action. Then it becomes apparent that the results of inspection represent the occult interaction of inherent variation with threshold effects. Inspection obscures the distinction between common and special causes. It seduces the unwary into misguided action that exacerbates quality problems and reputational damage. It obscures the sad truth that, as Terry Weight put it, a disappointment is not necessarily a surprise.

The programme

  1. Drive out sensitivity to variation at the design stage.
  2. Routinely measure the inputs whose variation threatens product performance.
  3. Measure product performance too. Your bounded rationality may have led you to get (2) wrong.
  4. No need to measure every unit. We are trying to understand the cause system not segregate items.
  5. Plot data on a process behaviour chart.
  6. Stabilise the system.
  7. Establish capability.
  8. Keep on measuring to maintain stability and improve capability.

Some people think they have absorbed Deming’s thinking, mastered it even. Yet the test is the extent to which they are able to analyse problems in terms of common and special causes of variation. Is that the language that their organisation uses to communicate exceptions and business performance, and to share analytics, plans, successes and failures?

There has always been some distaste for Deming’s thinking among those who consider it cold, statistically driven and paralysed by data. But the data are only a means to getting beyond the emotional reaction to those two impostors: triumph and disaster. The language of common and special causes is a profound tool for building engagement, fostering communication and sharing understanding. Above that, it is the only sound approach to business measurement.

The elephant in the room – proving a negative in litigation

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File:African Bush Elephant.jpgThe apocryphal story goes around that Ludwig Wittgenstein challenged fellow philosopher Bertrand Russell to prove that there wasn’t an elephant in the room in which they were sharing afternoon tea.

It’s a fairly self-indulgent challenge between intellectuals but it does highlight a feeling we’ve all had. It’s easy to prove that there’s an elephant there, if there is, by pointing to it. Proving that something isn’t there is more problematic. You have to point to everywhere that it isn’t.

Former Shell Legal Director Peter Rees QC recently observed that litigation and compliance are the most significant risks currently facing corporations. In litigation, defendants sometimes find themselves in the position of having to prove that something didn’t happen against an allegation from a claimant that it did. That always puts the defendant at a disadvantage. The claimant will give evidence of what they say happened. What evidence can the defendant give?

This asymmetry will be all the more keenly felt in England and Wales following the recent Jackson reforms to personal injury litigation. The former control mechanisms have been swept away and the Ministry of Justice believes that this is likely to result in more claims against businesses. Claims that would have previously been screened out will now be run because of the economics of the restructured claims environment. All my instructing solicitors are now confirming this to me.

Ironically, the instrument of this upwards pressure on claims risk is Qualified One-way Cost Shifting (QOCS). QOCS also pretty much prevents a business who successfully defends a claim from recovering legal costs against the unsuccessful claimant. In any event, legal costs are likely to be dwarfed by irrecoverable costs to the business from having key people distracted from the value-creating process.

All that means that businesses need to get better at stifling spurious claims at the outset. The twin keys to that are process discipline and record keeping.

It always saddens me when I have to advise businesses to settle doubtful claims simply because their record keeping was not capable of setting them up to rebut an allegation.

There are three principal elements to staying ahead of the game:

  • Ensuring that risk assessment identifies where record keeping would support the organisation’s narrative of prudent operation and regulatory compliance;
  • Implementing a system of process surveillance to foster process discipline; and
  • Building a document retention system that ensures that such a record can be interrogated to provide a compelling picture of conscientious management and risk mitigation.

A well designed document retention system is a key part of managing risks.

I find it instructive and encouraging that in Divya & Ors v Toyo Tire and Rubber Co. Ltd & Ors, Toyo Tire managed to persuade the court that it was very unlikely that a road traffic accident could have been caused by a manufacturing fault in their tyre.

I do not advocate rigorous process management as a net cost motivated by defensive operations aimed at providing a patina of compliance. That is not what succeeded at Toyo Tire. Rigorous process management reduces waste, improves socially recognised customer reputation and streamlines cashflow. Its potency in litigation is a bonus.

Trust in forecasting

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File:City of London skyline at dusk.jpgStephen King (global economist at HSBC) made some profound comments about forecasting in The Times (London) (paywall) yesterday.

He points out that it is only a year since the International Monetary Fund (IMF) criticised UK economic strategy and forecast 0.7% GDP growth in 2013 and 1.5% in 2014. The latest estimate for 2013 is growth is 1.9%. The IMF now forecasts growth for 2014 at 2.4% and notes the strength of the UK economy. I should note that the UK Treasury’s forecasts were little different from the IMF’s.

Why, asks King, should we take any notice of the IMF forecast, or their opinions, now when they are so unapologetic about last year’s under estimate and their supporting comments?

The fact is that any forecast should come attached to an historic record of previous forecasts and actual outcomes, preferably on a deviation from aim chart. In fact, wherever somebody offers a forecast and there is no accompanying historic deviation from aim chart, I think it a reasonable inference that they have something to hide. The critical matter is that the chart must show a stable and predictable process of forecasting. If it does then we can start to make tentative efforts at estimating accuracy and precision. If not then there is simply no rational forecast. It would be generous to characterise such attempts at foresight as guesses.

Despite the experience base, forecasting is all about understanding fundamentals. King goes on to have doubts about the depth of the UK’s recovery and, in particular, concerns about productivity. The ONS data is here. He observes that businesses are choosing to expand by hiring cheap labour and suggests macroeconomic remedies to foster productivity growth such as encouraging small and medium sized enterprises, and enhancing educational effectiveness.

It comes back to a paradox that I have discussed before. There is a well signposted path to improved productivity that seems to remain The Road Not Taken. Everyone says they do it but it is clear from King’s observations on productivity that, in the UK at least, they do not. That would be consistent with the chronically poor service endemic in several industries. Productivity and quality go hand in hand.

I wonder if there is a preference in the UK for hiring state subsidised cheap labour over the rigorous and sustained thinking required to make real productivity improvements. I have speculated elsewhere that producers may feel themselves trading in a market for lemons. The macroeconomic causes of low productivity growth are difficult for non-economists such as myself to divine.

However, every individual company has the opportunity to take its own path and “Put its sticker on a lemon”. Governments may look to societal remedies but as an indefatigable female politician once trenchantly put it:

The individual is the true reality in life. A cosmos in himself, he does not exist for the State, nor for that abstraction called “society,” or the “nation,” which is only a collection of individuals. Man, the individual, has always been and, necessarily is the sole source and motive power of evolution and progress.

Emma Goldman
The Individual, Society and the State, 1940