Basic Business Cents: Leaders need appreciation for system, knowledge of variation

The second component of leadership is appreciation for a system. We all work in a system and we need to make decisions with the benefit of the entire system in mind.

Lou Schultz
Lou Schultz

The second component of leadership is appreciation for a system. We all work in a system and we need to make decisions with the benefit of the entire system in mind.

A manager's role is to understand how the organization works as a system and to know when and how to optimize the system. Micro-management, improving one part of the organization at the expense of another, demanding results from people that the system is not capable of producing and automating faulty processes are examples of mistakes managers make when they do not understand the system of work.

The organization must have a well-defined process to:

n Recognize a system;

n Define it so others can recognize it;


n Analyze its behavior;

n Work with subordinates in improving the system;

n Measure the quality of the system;

n Develop improvements in the quality of the system;

n Measure the gains in quality, if any, and link these to customer delight;

n Take steps to guarantee holding the gains.

Product defects are rarely the fault of the worker; the process, established and controlled by management, is more likely to be at blame. Workers work in the system; management works on the system.

People are trying their best in the system they are given. They have an intrinsic desire to improve themselves. W. Edwards Deming really believed that people were doing their best and always concluded his four-day seminars by saying, "And now I leave you with five words: I have done my best."


Only about 20 percent of all problems are caused by workers. They are responsible for only a trivial small part of the problems. Management is responsible for 80 percent of the problems because they have the responsibility for changing and improving the processes. Deming, in his later years, stated that management was responsible for more like 94 percent of the problems.

Management is the major cause of waste, rework and untold losses.

Management must understand their system and how it works before they can make any recommendations for improvement.

The third component of leadership is knowledge of variation. Nothing is exactly the same. For example, if you bought a sack of nails and if examined under a microscope you would discover that there are minor differences between each nail.

Managers must have knowledge of variation, which exists in everything - systems, services, people and nature. Understanding what a system can do, and what it cannot do, depends on having statistical data and knowing how the data was obtained. The past is helpful to us only if it helps in the future, if it predicts. Management is prediction.

Deming gave lectures to top Japanese business leaders in the 1950s regarding the importance of management's understanding of statistical methods, which helped them attain a significant role in world trade.

There are no absolute truths, only data from measurement of observation. Deming used to use the example of our perception of the value of the speed of light to support this statement.

What was considered to be the absolute speed was changed several times over the years as we developed new ways to measure it.


He jokingly credited Galileo with saying that if the speed of light is not infinite, then it is awfully darned fast.

Like Walter Shewhart, Deming identified two ways to improve work processes; resolving "special" causes of variation and reducing "common" causes variation.

Managers must know the difference. Special causes of variation appear on a control chart as a point lying outside the calculated control limits or as other non-random patterns.

A manager should ask, "Is the process performing in a dependable, predictable way over time, with no evidence of assignable causes of variation?"

If the answer is no, the process is not stable, that is, there are sources of variation that are not part of the process. These are called special causes of variation, which must be identified and resolved before the process can become stable. The elimination of special causes is often the responsibility of someone working directly with the operation. Common causes, or problems with the overall system, are the responsibility of management. Common causes of variation are those inherent in a system.

Management's efforts to reduce variation must be unceasing and must be consistently communicated to the workers.

Louis Schultz is managing director of Process Management LLC.

He currently works with area business owners as a SCORE counselor. E-mail him with questions or comments at lou@process


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