The New Economics for Industry, Third

by Deming

ISBN: 9780262355445 | Copyright 2000

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A new edition of a book that details the system of transformation underlying the 14 Points for Management presented in Deming's Out of the Crisis.

It would be better if everyone would work together as a system, with the aim for everybody to win. What we need is cooperation and transformation to a new style of management.”
—from The New Economics for Industry, Government, Education

In this book, W. Edwards Deming details the system of transformation that underlies the 14 Points for Management presented in Out of the Crisis. The Deming System of Profound Knowledge, as it is called, consists of four parts: appreciation for a system, knowledge about variation, theory of knowledge, and psychology. Describing the prevailing management style as a prison, Deming shows applying the System of Profound Knowledge increases productivity, quality, and people's joy in work and joy in learning. Another outcome is short-term and long-term success in the market. Indicative of Deming's philosophy is his advice to abolish performance reviews on the job, to look deeper than spreadsheets for opportunities, and even to rethink how we teach and manage our schools. Moreover, Deming's method enables organizations to make accurate predictions, which is a valuable tool in today's uncertain economic climate.

This third edition features a new chapter (written by business consultant and Deming expert Kelly L. Allan) that explains the relevance of Deming's management method, and case studies from organizations that have adopted Deming's System of Profound Knowledge, and offers guidance on how organizations can effectively “do Deming.”

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Contents (pg. v)
Description of Figures (pg. vii)
Foreword to the Third Edition (pg. ix)
Foreword to the Second Edition (pg. xv)
About the Author (pg. xvii)
Preface (pg. xix)
1 HOW ARE WE DOING? (pg. 1)
A new world: Information flows (pg. 1)
Necessity for trade (pg. 2)
The market is the world (pg. 2)
What is quality? (pg. 2)
Have we been living on fat? (pg. 2)
How does the United States stand? (pg. 3)
What happened? (pg. 3)
What must we do? (pg. 4)
What state of company is in the best position to improve? (pg. 5)
The customer’s expectations (pg. 5)
Does the customer invent new product or service? (pg. 5)
Is it sufficient to have happy customers? loyal customers? (pg. 6)
Innovation (pg. 6)
What business are we in? (pg. 7)
No defects, no jobs (pg. 7)
A look at some of the usual suggestions for improvement of quality (pg. 9)
What is wrong with these suggestions? (pg. 10)
What is wrong with these declarations? (pg. 12)
Why did the plant close? (pg. 12)
Why did the bank close? (pg. 12)
Where is quality made? (pg. 13)
Example (pg. 13)
Aim of this chapter (pg. 17)
Need for action (pg. 26)
Do not confuse coincidence with cause and effect (pg. 26)
How far have we gone? (pg. 26)
Beware of common sense (pg. 27)
Salary for salesmen in place of commissions (pg. 28)
A parallel example (pg. 28)
Goals, aims, hopes (pg. 29)
Facts of life (pg. 29)
Futility of a numerical goal (pg. 30)
A picture may help (pg. 30)
Will a numerical goal be achieved? (pg. 31)
Goal: cut costs (pg. 32)
Horrible example of numerical goals in public places. (pg. 32)
Aim of this chapter (pg. 35)
What is a system? (pg. 35)
Management’s job (pg. 36)
Recommended aim (pg. 36)
Is your organization a system? (pg. 36)
Development of aim. (pg. 37)
Management of a system (pg. 37)
A system includes the future. (pg. 38)
Boundary of a system (pg. 39)
A system includes competitors (pg. 40)
What ignited Japan? (pg. 41)
Dynamics of a system (pg. 42)
Joy in work (pg. 42)
Words from A. Richard Seebass (pg. 43)
A system of schools (pg. 44)
Delayed effects (pg. 44)
Interdependence and interaction (pg. 45)
Job description needs revision (pg. 45)
St. Paul understood a system (pg. 46)
Destruction of a system (pg. 46)
An example of destruction of a system (pg. 47)
Another example of destruction of a system (pg. 48)
Another example (pg. 49)
Yet another example of destruction of a system (pg. 50)
Everything best is not enough (pg. 50)
Destruction of schools (pg. 50)
Who would wish to do business with a loser? (pg. 51)
Family life (pg. 51)
Failure of adversarial competition (pg. 51)
Price fixing (pg. 52)
Some remarks on monopolies (pg. 52)
Cooperation of Ivy League universities (pg. 53)
Remarks on a system of transportation (pg. 54)
Illustration of selfish competition versus cooperation between departments (pg. 57)
Some common examples of cooperation (pg. 61)
Aim of this chapter (pg. 63)
The first step (pg. 63)
The outside view (pg. 64)
Preliminary remarks (pg. 64)
A System (pg. 65)
What is a system? (pg. 65)
Interdependence (pg. 65)
Obligation of a component (pg. 66)
Basis for negotiation (pg. 67)
Knowledge about Variation (pg. 67)
Life is variation (pg. 67)
Stable and unstable states (pg. 68)
Theory of Knowledge (pg. 69)
Management is prediction (pg. 69)
Knowledge is built on theory (pg. 69)
Use of data requires prediction (pg. 70)
No true value (pg. 71)
Operational definitions. An example (pg. 72)
Information is not knowledge (pg. 72)
Losses from successive application of random impulses (pg. 73)
Some important signposts for profound knowledge (pg. 73)
Psychology (pg. 73)
The phenomenon of overjustification (pg. 75)
Further remarks on rewards (pg. 75)
Examples of overjustification (pg. 76)
Appreciation? Certainly. (pg. 77)
5 LEADERSHIP (pg. 79)
Aim of this chapter (pg. 79)
What is a leader? (pg. 79)
Great ideas: great plans (pg. 80)
Example of a leader (pg. 80)
Aim of this chapter (pg. 83)
Effects of the present style of reward (pg. 83)
Transformation is required in government, industry, education (pg. 85)
Pictorial effect of transformation (pg. 85)
Example of incompatible hopes (pg. 85)
Management of people (pg. 86)
Example (pg. 88)
On their honor, it paid (pg. 89)
Is the company hampering itself by mismanagement of people? (pg. 89)
The PDSA Cycle2 (pg. 91)
Planning for a new engine (pg. 92)
To shorten the time of development (pg. 93)
Example (pg. 95)
A word on current accounting practice in development (pg. 96)
Danger in divided responsibility (pg. 96)
Joint responsibility (pg. 98)
Promotion (pg. 98)
What ought a school of business teach? (pg. 99)
A remark on education (pg. 100)
Against grading in school (pg. 100)
Ranking and grading produce artificial scarcity (pg. 101)
Theory of a system, win, win, needed in education (pg. 102)
Some examples of effects of grading, gold stars, prizes (pg. 103)
7 THE RED BEADS (pg. 107)
Aim of this chapter (pg. 107)
The experiment with the Red Beads (pg. 107)
Procedure (pg. 108)
Results (pg. 111)
Best workers? (pg. 113)
Thoughts from a Willing Worker named Ann (pg. 113)
What do you mean by the same conditions? (pg. 114)
Cumulated distribution of red beads (pg. 115)
Another lesson from the Red Beads (pg. 115)
Summary of Lessons from the Red Beads (pg. 117)
Common causes and special causes (pg. 120)
Losses from the two mistakes. (pg. 121)
Stable system; prediction (pg. 121)
False signals are possible (pg. 122)
Next step (pg. 122)
Application to the management of people (pg. 122)
Specification limits are not control limits (pg. 123)
Examples of Costly Misunderstanding (pg. 123)
Flow diagram for use of a control chart (pg. 125)
Accidents on the highway (pg. 127)
More on accidents (pg. 128)
Wrong approach (pg. 128)
Fires (pg. 128)
Other examples (pg. 130)
A word on malpractice (pg. 130)
9 THE FUNNEL (pg. 131)
Aim of this chapter (pg. 131)
Procedure (pg. 131)
Conclusion (pg. 135)
Examples of Tampering (pg. 135)
Rule 2 (pg. 135)
Rule 2 (pg. 136)
A fuzzy example (pg. 137)
Rule 3 (pg. 137)
Rule 4 (pg. 137)
Some additional notes on tampering (pg. 138)
Illustration (pg. 140)
Aim of this chapter (pg. 143)
Anecdote (pg. 144)
Patrick, 11, and the school bus (pg. 144)
Allowance, 10 percent (pg. 145)
Inventory, computerized (pg. 145)
Salesmen (pg. 148)
Shocks from common causes of variation of trade deficit (pg. 149)
Headlines (pg. 149)
Note on Use of Loss Functions (pg. 149)
Meet specifications (pg. 152)
Meeting a deadline (pg. 153)
Advantage of nominal value (pg. 155)
Aim of this chapter (pg. 157)
Optimistic or pessimistic? (pg. 158)
A theory of management (pg. 159)
Are you in favor of quality? (pg. 160)
The quality–productivity revolution (pg. 161)
The importance of a point of view (pg. 163)
What can you do to start on your Deming Journey? (pg. 167)
Things you can merely STOP doing (pg. 169)
The one element that is often difficult to overcome (pg. 176)
Avoid the failure modes! (pg. 177)
Why Deming? Why now? In YOUR organization (pg. 181)
A real-world case reveals the power of the System of Profound Knowledge (pg. 184)
Empirical research, data, and real life examples (pg. 188)
More specific examples (pg. 192)
Appreciation for a system in commercial architecture (pg. 193)
Knowledge about variation in financial services and asset protection (pg. 194)
Theory of Knowledge in healthcare and services (pg. 195)
Psychology in Internet-based services (pg. 195)
Predictions. What the future will bring. Why not go there, now? (pg. 196)
What is next? (pg. 201)
Appendix: Resources for Learning and Implementation of Your Deming Journey (pg. 201)
Further Reading (pg. 203)
Appendix: Continuing Purchase of Supplies and Services (pg. 205)
World l (pg. 205)
World 2 (pg. 205)
World 3 (pg. 206)
Some remarks (pg. 207)
Selection of the single supplier. Prime consideration. (pg. 208)
Advantages of having a single supplier for any one item (pg. 208)
Obligations of customer and supplier (pg. 209)
Some of the usual fears about a single supplier (pg. 209)
Engineering changes (pg. 210)
Index (pg. 211)
Plates (pg. P1)

W. Edwards Deming

W. Edwards Deming (1900–1993) was international consultant in management and quality. In 1987, he was awarded the National Medal of Technology and Innovation by President Ronald Reagan.

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