The New Economics for Industry, Government, Education

1. The prevailing style of management is the biggest producer of waste

The present style of management is the biggest producer of waste, causing huge losses whose magnitudes cannot be evaluated, cannot be measured.

Harmful practices. Many common management practices actually hinder productivity and quality:

• Ranking employees and teams
• Management by numerical goals
• Focus on short-term thinking
• Reliance on inspection to improve quality
• Constantly changing priorities and initiatives

Better approaches. Instead, organizations should:

• Focus on optimizing the whole system
• Provide constancy of purpose
• Invest in long-term improvement
• Build quality into processes from the start
• Foster cooperation rather than internal competition

2. A system must have an aim and be managed as a whole

A system must have an aim. Without an aim, there is no system.

System definition. A system is a network of interdependent components working together toward a common aim. Key aspects:

• The aim must be clear to everyone
• Components should cooperate, not compete
• Optimize the whole system, not individual parts

Management's role. Leaders must:

• Clarify and communicate the system's aim
• Manage interactions between components
• Expand system boundaries when needed
• Make decisions considering the entire system

3. Profound knowledge is essential for transformation of management

The first step is transformation of the individual. This transformation is discontinuous. It comes from understanding of the system of profound knowledge.

Four components. Deming's system of profound knowledge consists of:

1. Appreciation for a system
2. Knowledge about variation
3. Theory of knowledge
4. Psychology

Interconnected parts. These elements are interrelated and must be understood together. For example:

• Psychology informs how to lead people in a system
• Knowledge of variation helps distinguish common from special causes
• Theory of knowledge guides continuous learning and improvement

4. Leadership is key to organizational transformation

The job of a leader is to accomplish transformation of his organization. He possesses knowledge, personality, and persuasive power.

Leader's role. Effective leaders must:

• Understand and communicate the need for transformation
• Have a clear vision and plan for change
• Possess deep knowledge of systems and management theory
• Demonstrate persuasive power to bring others along

Change process. Transformation requires:

• Individual change in thinking, starting with leaders
• Clear communication of new philosophy throughout organization
• Patience and persistence to overcome resistance
• Continual learning and adjustment of approach

5. Managing people requires understanding variation and psychology

A manager of people understands that people are different from each other. He tries to create for everybody interest and challenge, and joy in work.

Understanding variation. Managers must:

• Distinguish between common and special causes of variation
• Avoid reacting to every fluctuation as if it were significant
• Use data and statistical methods to understand processes

Psychology insights. Effective people management involves:

• Recognizing individual differences and strengths
• Creating conditions for intrinsic motivation
• Fostering cooperation rather than competition
• Eliminating fear and encouraging innovation

6. Quality and productivity improve together through systems thinking

Improvement of quality envelops the entire production line, from incoming materials to the consumer, and redesign of product and service for the future.

Quality-productivity link. Contrary to common belief:

• Improving quality reduces costs
• Higher quality leads to higher productivity
• Focus on quality first, then productivity follows

Systems approach. To improve quality:

• Look at the entire value stream
• Involve suppliers and customers
• Continuously redesign products and processes
• Foster cooperation across all departments

7. Continuous improvement comes from applying the scientific method

A flow diagram for learning and for improvement of a product or of a process.

PDSA cycle. The Plan-Do-Study-Act cycle is key:

1. Plan: Develop a theory for improvement
2. Do: Carry out a small-scale test
3. Study: Analyze the results
4. Act: Adopt, abandon, or modify the change

Scientific thinking. This approach:

• Encourages learning through experimentation
• Reduces risk of large-scale failures
• Promotes data-driven decision making
• Cultivates a culture of continuous improvement

8. Competition within an organization is destructive; cooperation is key

The aim of anybody, under the merit system, is to please the boss. The result is destruction of morale. Quality suffers.

Problems with internal competition:

• Undermines teamwork and information sharing
• Encourages short-term thinking and manipulation of metrics
• Creates winners and losers, damaging morale

Benefits of cooperation:

• Aligns efforts toward common organizational goals
• Promotes learning and best practice sharing
• Improves overall system performance
• Increases job satisfaction and engagement

9. Focus on long-term thinking and constancy of purpose

Of course, management must work on short-term problems as they turn up. But it is fatal to work exclusively on short-term problems, only stamping out fires.

Long-term focus. Organizations should:

• Develop and communicate a clear long-term vision
• Invest in research, innovation, and employee development
• Make decisions considering future impacts, not just immediate results

Constancy of purpose. This involves:

• Maintaining commitment to the vision despite setbacks
• Resisting pressure for short-term gains at long-term expense
• Continually educating stakeholders on the importance of the long view

10. Eliminate management by numerical goals and quotas

A numerical goal accomplishes nothing. Only the method is important, not the goal.

Problems with numerical targets:

• Encourage manipulation and short-term thinking
• Ignore system capability and variation
• Create fear and discourage innovation

Better approaches:

• Focus on improving methods and processes
• Use data to understand system capability
• Set objectives for continual improvement, not fixed targets
• Encourage experimentation and learning

11. Drive out fear and build intrinsic motivation in the workplace

No one can enjoy his work if he will be ranked with others.

Negative impacts of fear:

• Suppresses innovation and risk-taking
• Encourages hiding of problems
• Damages communication and teamwork
• Reduces job satisfaction and engagement

Fostering intrinsic motivation:

• Create a safe environment for sharing ideas and concerns
• Provide opportunities for learning and growth
• Recognize and utilize individual strengths
• Connect work to meaningful purpose
• Eliminate annual performance ratings and merit pay

Last updated: May 22, 2025