Sep 7 2012
Deming’s full statement is as follows:
“Create constancy of purpose toward improvement of product and service, with the aim to become competitive, stay in business and to provide jobs.”
We can breaks this down into several components:
- You should always be improving what your customers are paying you for, whether goods or services.
- You do this in order to:
- Compete, presumably against anyone worldwide.
- Stay in business, presumably forever.
- Provide jobs.
The most surprising piece is the mention of providing jobs as a goal. It is a goal for society at large, but a company creates jobs when it has to, and does not make it a goal. What Deming is really after, however, is not job creation but retention. As he elaborates on this point, he is saying that, instead of worrying exclusively about quarterly profits, companies should have a longer term strategy involving innovation, investments in research and education, and constant improvement in products or services – as well as internal processes – and that no employees should lose their jobs for contributing to improvements.
Most of his readers in the 1980s would have readily agreed on the need for a strategy, but would at best have paid lip service to the need to retain people. 30 years later, the management of most American companies is even less committed to its work force, and practices like rank-and-yank make firings routine, even in the absence of economic need. The few companies that have implemented the Human Resources part of Lean can claim to follow Deming on this point.
Although he does not say it in so many words, it is clear from what he says in other parts of the book, is that “making profits every quarter” is not an appropriate purpose, whatever constancy you pursue it with. Your purpose should be in terms of goods or services provided to a population of customers, with profits a by-product of doing this well.
How do you create constancy of purpose? As a necessary condition, it seems that a purpose would have to be articulated and communicated to all stakeholders, and serve as an overarching hoshin for the organization. This is what today’s Mission Statements are supposed to do.
Some of them don’t live up to this expectation. GM’s mission statement, for example, is as follows:
“G.M. is a multinational corporation engaged in socially responsible operations, worldwide. It is dedicated to provide products and services of such quality that our customers will receive superior value while our employees and business partners will share in our success and our stock-holders will receive a sustained superior return on their investment.”
From it, you would not guess that the company makes cars and trucks. The statement reads like keywords strung together. The only specific thing it says is that the company exists to make money for stock-holders. Ford’s is equally cagey:
“Ford Motor Company is focused on creating a strong business that builds great products that contribute to a better world.”
A cheese maker could say the same.
Schlumberger, on the other hand, describes itself as follows:
“The world’s leading oilfield services company supplying technology, information solutions and integrated project management that optimize reservoir performance for customers working in the oil and gas industry.”
Neither a cheese maker nor a car company could say that. From that one sentence, we know which market the company serves and what it provides. To managers inside the company, it provides a clear direction on what to pursue and what to stay away from.
This is a company founded in 1926 with over $39B in sales in 2011. 25 years ago, it could not have made such a clear statement of purpose, because it had diversified into unrelated areas: besides providing oilfield services, it was making household meters for electricity, water and gas, smart cards, and semiconductor chips. It has since then sold off all these businesses and refocused on the activity for which it had been founded.
Google’s mission statement is also clear and specific:
“Google’s mission is to organize the world‘s information and make it universally accessible and useful.”
Companies diversify to hedge against the instability or cyclicality of their original businesses. A consequence of diversification it that it shifts management’s focus away from products and services. Mission statements then can express no other constant purpose than making money at all times, which Deming brands a deadly disease in Chapter 3 of Out of the Crisis.
Managers believe they can combine unrelated businesses, because they think of management as a generic skill, portable from oilfield services to semiconductors, from sugary water to computers, or from dessert toppings to floor wax. There are individual success stories, like Carlos Ghosn going from tires to cars, or Alan Mulally from airplanes to cars, but it is a different challenge for a company to take over another in a different business, and failures are common. If a company operates by Deming’s 1st point, it has a purpose that can be stated in a mission statement in terms of products and services. Conglomerates clearly don’t, but then, neither do Korean Chaebols or Japanese Keiretsus, and such structures still include some of the world’s best known companies, like GE, Hyundai, or Mitsubishi.