This is the most cryptic of all of Deming’s points:

“Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.”

This could have been said, with different meanings, at any time in the past 200 years. It could be said today, about a “new philosophy” that would not be the one Deming was referring to 30 years ago.  What was new in 1982 or even 1986 may be long in the tooth in 2012. Also,  is there such a thing as “Western management” as a common approach spanning the Americas and Western Europe? In the elaboration on this point, Deming asserts “We are in a new economic age, created by Japan.”

Deming’s 2nd point could be rephrased as “study and adopt Japanese management,” but it still would not be specific. It certainly made sense for car companies to learn the Toyota Production System, as they eventually more or less did, but Japan is 130 million people and more than 1 millions companies, engaging in all sorts of behaviors, not all of which are worthy of emulation. In addition, explicit references to another nation are counterproductive when you are trying to implement anything, as they instantly elicit the response that “it won’t work here.”

To make his point, Deming dives from the stratosphere of philosophy to the nitty-gritty of train schedules. Japanese trains, today as well as 30 years ago, run fast, frequently, and on time, which certainly enhances your traveling experience. As a train engineer told me in 1977,  “It’s a very interesting country, from a railroad point of view.” When I returned from Japan 18 months later, I brought him a copy of the latest schedule, which was sold at newsstands and looked like a small phone book. 34 years later, I crisscrossed Japan  for a week with tight connections and never missed one. It is radically different from using high-speed trains in Germany (ICE) or France (TGV). The Japanese high-speed trains, the Shinkansen, are no longer the fastest in the world, but what is most remarkable about them is that, if you stand close to the Tokyo-Osaka line, you see trains of 16 carriages roll by at 150 tp 200 mph every few minutes, as shown in Figure 1. By contrast,  TGVs from Paris to Lyon run about once an hour, and often late.

Figure 1. Schedule of Shinkansen departures from Tokyo to Osaka and beyond

And punctuality in public transportation in Japan is not limited to the Shinkansen: if you stand on a country road, with a schedule that calls for a bus to come by at 4:36PM, you see it coming round the bend at 4:35PM.

One good reason to point this out to American managers in the 1980s was that such a quality of service could not be explained by hard work, low wages, or protectionism. It required advanced technology and management, engagement of the work force, and attention to details. Furthermore, from 1964 to 1981, the Shinkansen was the only train of its kind in the world.

While the Shinkansen and its operations are a wonder to behold, it also has characteristics that have made it impossible to sell outside of Japan. It uses a wide gauge and cannot run at reduced speeds on regular tracks like the French TGV or the German ICE, as a result of which the Shinkansen network requires many more specially built bridges and tunnels.

Figure 2. Shinkansen tracks versus regular Japanese tracks

In fact, the only stretch on which traffic is intense enough to run profitably is the original Tokyo-Osaka line, and some lines are known to have been built because a powerful politician wanted his district served. Japan is a place where you find the Shinkansen and many other engineering marvels, but it is not immune to major errors in business planning and has its share of bridges to nowhere. It is not an ideal society, as Deming must have known, but a real, flawed one, comprised of 130 million fallible human beings.

In the US, fear of Japanese competition peaked in the late 1980s, and ebbed in the 1990s when the country entered a long recession that it has yet to overcome. In 2012, the focus of attention is China, not Japan. Not everything about Japan is worth following, and it was a mistake to believe so, but it is also a mistake to go back to ignoring it. In manufacturing, the most advanced concepts in both technology and management are still  found in the best Japanese factories, and the Japanese literature on the subject has no equivalent anywhere else.

But none of this tells us what the “new philosophy” is. By riding trains and visiting factories, you can observe practices, but not their underlying principles.  And you need these principles to develop corresponding practices in other contexts. There isn’t a single such philosophy for the whole of Japan. Instead, each successful organization has its own, which may or may not be explicitly stated, and if stated for internal use, is not necessarily shared with the world. In Out of the Crisis, the 14 points are the closest there is to the statement of a philosophy. Therefore this points essentially says that they the others should be adopted.

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:

1. You should always be improving what your customers are paying you for, whether goods or services.
2. 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.