One of Deming’s essential theories is his System of Profound Knowledge, His knowledge system consists of four interrelated parts:
- Theory of Optimization;
- Theory of Variation;
- Theory of Knowledge; and
- Theory of Psychology.
THEORY OF OPTIMIZATION
The objective of an organization is the optimization of the total system and not the optimization of the individual subsystems. The total system consists of all constituents—customers, employees, suppliers, shareholders, the community, and the environment. A company’s long-term objective is to create a win-win situation for all of its constituents.
Subsystem optimization works against this objective and can lead to a suboptimal total system. According to Deming, it is poor management, for example, to purchase materials or service at the lowest price or to minimize the cost of manufacturing if it is at the expense of the system. Inexpensive materials may be of such inferior quality that they will cause excessive costs in adjustment and repair during manufacturing and assembly.
THEORY OF VARIATION
Deming’s philosophy focuses on improving the product and service uncertainty and variability in design and manufacturing processes. Deming believed that variation is a major cause of poor quality. In mechanical assemblies, for example, variations from specifications for part dimensions lead to inconsistent performance and premature wear and failure. Likewise, inconsistencies in service frustrate customers and hurt companies’ reputations. Deming taught Statistical Process Control and used control charts to demonstrate variation in processes and how to determine if a process is in statistical control.
There is a variation in every process. Even with the same inputs, a production process can produce different results because it contains many sources of variation, for example, the materials may not always be exactly the same; the tools wear out over time and they are subjected to vibration heat or cold, or the operators may make mistakes. Variation due to any of these individual sources appears at random; however, their combined effect is stable and usually can be predicted statistically. These factors that are present as a natural part of a process are referred to as common (or system) causes of variation.
Common causes are due to the inherent design and structure of the system. It is management’s responsibility to reduce or eliminate common causes. Special causes are external to the system, and it is the responsibility of operating personnel to eliminate such causes. Common causes of variation generally account for about 80 to 90 percent of the observed variation in a production process. The remaining 10 to 20 percent are the result of special causes of variation, often called assignable causes. Factors such as bad material from a supplier, a poorly trained operator or excessive tool wear are examples of special causes. If no operators are trained, that is a system problem, not a special cause. The system has to be changed.
THEORY OF KNOWLEDGE
Deming emphasized that knowledge is not possible without theory, and experience alone does not establish a theory. Experience only describes—it cannot be tested or validated—and alone is no help for management. Theory, on the other hand, shows a cause-and-effect relationship that can be used for prediction. There is a lesson here for the widespread benchmarking practices: copying only an example of success, without understanding it in theory, may not lead to success, but could lead to disaster.
THEORY OF PSYCHOLOGY
Psychology helps to understand people, interactions between people and circumstances, interactions between leaders and employees, and any system of management. Consequently, managing people requires knowledge of psychology. Also required is knowledge of what motivates people. Job satisfaction and the motivation to excel are intrinsic. Reward and recognition are extrinsic. Management needs to create the right mix of intrinsic and extrinsic factors to motivate employees.