I’ve wrote about W. Edwards Deming and his 14 Points in a previous post.  You can read it here.  Today, I’d like to talk about his Seven Deadly Diseases.  These were the ailments that Deming saw as reason for the decline of Western Management:

Lack of constancy of purpose to plan product and service that will have a market and keep the company in business and provide jobs.

General Motors, anyone?  Remember the Hummer?  As people were clamoring for hybrid vehicles, dealerships couldn’t give these beasts away.

Emphasis on short-term profits: short term thinking, fed by fear of unfriendly takeover, and by plush from bankers and owners, for dividends.

My company focuses on “key salients”, i.e. measurable targets such as new orders, sales, profit, etc.  Bonuses for the directors are tied to achieving their numbers for the year.  It gets real interesting at year-end, as contracts are accepted with less-than-optimal profit margins just to achieve the new orders target.  If this isn’t short-term thinking, I don’t know what is.

Personal review system, or evaluation of performance, merit rating, annual review, or annual appraisal, by whatever name, for people in management, the effects of which are devastating. Management by fear would be better, than management by objective without a method for accomplishment.

Oh boy, a pet peeve of mine.  Every year, we have to compile a list of our objectives.  The achievement of many of these is out of my control, but they count towards my performance anyway.  What everyone does is sandbag their objectives, making most of them easy to attain, so that there’s only good news at review time.  Nobody wants to miss accomplishing an objective.  The system as it exists is basically useless as a management tool.

Mobility of management: job hopping.

One of my former employers encouraged this practice.  They felt that you were ready for a new assignment every 18 months, and encouraged job-hopping.  The only problem with this, besides lack of continuity with your customers, is that someone could do a lousy job and get promoted out of it - the Peter Principle in practice.  You wouldn’t even know what damage was done until the dust settled.  These screw-ups were using company policy to run away from their own messes.  People were changing jobs more often than Larry Brown.

Use of visible figures only for management, with little or no consideration of figures that are unknown or unknowable.

Our division has been tasked with an 8% annual CAGR (Compound Annual Growth Rate).  Our division is in the defense industry.  We’re in a recession.  Guess what’s getting cut to help pay for all of last year’s bailouts?  That’s right, new defense contracts.  Rather than look at a dollar value, we should measure our success against market share.  Market share might be harder to measure than new orders, but it is more accurate in determining effectiveness in a declining market.

Excessive medical costs.

My company has a health club on the premises.  You pay a small amount as a “copayment”, and you can use the equipment on your own time.  We also have free blood pressure screenings.  If more companies would offer these preventative measures, maybe we could cut health care costs.

Excessive costs of warranty, fueled by lawyers that work contingency fees.

The product line that I support has a built-in level of expected failures.  This leads to the purchase of excess material, which ties up working capital.  For every dollar that could be saved, we could invest it back into the company.  Think about that when your foreman wants a few extra pieces “just in case”.  Improve the quality, and improve the profits.

I’ve pointed out where my company has “sinned”.  How about yours? Do you see your own company in any of these examples?  If so, have the problems been identified, and any corrective action taken?  Let’s hear it in the comments!

• Slacking Off at Work Photo by cell105 As we get toward the end of the year, people in my area of expertise (finance) tend to get busy.  Very busy.  It starts just before Thanksgiving, and just gets crazier as the end of the year gets closer.  So today it's Thanksgiving, and I'm planning......
• Shark Tank Photo by Kecko I started watching the TV show Shark Tank a few weeks ago.  It consists of an entrepreneur pitching his or her business model to five "sharks", rich investors that can buy a piece of the entrepreneur's company.  While there are some viable ideas, most of the......
• Unpaid Overtime: Not Just for Brown Nosers Anymore country_boy_shane I worked with a guy many years ago who lived for overtime.  Actually, I think he relied on it to live.  Even though he had a college degree, and worked in the finance department, he would work overtime in the kitting department (the stockroom for you non-defense contractor......

• Sam Zell Imparts His Wisdom One of the advantages of going to a top-tier MBA program is that you get to meet a lot of succesful, well-known people. Last week, billionaire real estate investor Sam Zell was on campus and gave an hour long speech about his views on the economy. He made an analogy......
• The Misunderstanding Most Investors Make I’ll be honest that I am not fully convinced as to what investment style works, and I am alright with that since my response is to have a little bit of everything. I have an actively managed dividend portfolio, a 401(k) made up mostly of actively managed mutual funds,......
• Management vs Marketing: This is How to Run a Small Business I caught a very impressive interview on CNBC today with small business owner Bill Dieruf of Dieruf Hardware. His message was fairly simple, but highly effective: Know the difference between management, and marketing. You might have noticed over the last year that many major brand names are advertising for the......