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The long famed (in Japan) and increasingly recognized (in the US) W. Edwards Deming was a prime catalyst behind the success of Japanese industry. Aguayo, who studied with Deming for seven years, introduces the man and his management lessons to a wide audience, and shows how Deming's principles can be applied to American industry. Annotation copyright Book News, Inc. Portland, Or.
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Rafael Aguayo studied with W. Edwards Deming for seven years, has worked in the financial sector for fifteen years, and is a consultant in quality and management. He lives in Brooklyn, New York.Excerpt. © Reprinted by permission. All rights reserved.:
Management and Quality
In 1986 Ford emerged as the darling of the American auto industry. Earnings, for the first time since the 1920s, exceeded those of General Motors, and in fact exceeded GM's and Chrysler's combined. Ford's market share continued to increase at the expense of its two American rivals. Its new Taurus/Sable car line was an unqualified success, commercially and in the eyes of Detroit's critics. Consumer Reports magazine, not usually a fan of American automobiles, called the new cars the best American cars it had ever tested and used the Taurus as the standard by which to judge other domestic models. In its press releases and advertisements, however, Ford did not stress sales or marketing but quality. For the sixth year in a row Ford automobiles were rated highest in quality of all the domestic manufacturers.
Subsequent years confirmed that Ford's success was not a fluke as earnings continued to exceed GM's and Chrysler's. Ford announced profit sharing for its hourly employees of over $2,000 per worker in 1987 and $3,700 in 1988. Some estimates of Ford's cost advantage over GM ran as high as $600 per car.
Not bad for a company that in 1980 had seemed on the brink of disaster and which prior to 1980 hadn't enjoyed a reputation for quality, particularly when compared to the Japanese automakers.
Back in 1980, while Chrysler was grabbing headlines with its brush with bankruptcy and the controversy surrounding the federal loan guarantee that kept its doors open, Ford was quietly suffering, hardly in better shape.
But in 1983 a quiet revolution began at Ford. The quality of American cars was the biggest complaint at the time. Ford management knew something had to be done. In 1983 Ford asked the foremost American expert on quality, the world-renowned Dr. W. Edwards Deming, for help. To management's surprise, however, Deming talked not about quality but about management. All of Ford's top management attended Deming's seminars, and the company has not been the same since. Among those who attended was Donald Petersen, who later became chairman and proclaimed Ford's intent to implement Deming's philosophy throughout the company.
In a letter to Autoweek, Petersen stated, "We are moving toward building a quality culture at Ford and the many changes that have been taking place here have their roots directly in Dr. Deming's teachings."
While other old-line domestic manufacturers have begun implementing quality cultures, few have gone as far as Ford in revamping their way of doing business. A limited or partial application of the Deming philosophy doesn't have the dramatic results that a full application has. An August 18, 1986, article in Fortune stated, "By spreading Deming's philosophy throughout the company, Ford, in the view of consultants and market researchers who have made comparisons, has probably taken greater strides in improving quality than any other U.S. auto manufacturer....A company that decides to take its quality consultant seriously can take off on a road that will transform the whole corporate culture. As Ford found out, following the Deming path leads to a lot more than tinkering with the assembly line."
Deming is no newcomer to American management or quality control. One of the founders of the field, he was actively involved in American quality control efforts during World War II, teaching engineers and academicians who in turn taught thousands of others. Many feel this program was integral to the success of the United States during the war.ar
After the war, however, many companies that had initiated quality control programs began to lose their incentive and conviction. The primary goal for most American enterprises was to produce enough to satisfy the seemingly endless demand for goods of all kinds. One of the main reasons for the failure of quality consciousness to take hold in this country was that management had never been taught its responsibility. The direct relationship between quality and sales, quality and productivity, quality and profit, quality and competitive position, had never been understood by most managers. The quality control courses taught by Deming and others under the auspices of the Department of War were directed primarily at engineers, inspectors, and industrial people who needed to be fully versed in specific methods and techniques. Once the critical push for high quality, low failure rates, and low cost was relaxed, management stopped the vigorous pursuit of quality.
Although Deming is probably the most respected statistician in America, if not the world, his letterhead modestly introduces him as a "Consultant in Statistical Studies." Despite the fact that he has won every major statistical award, is a professor emeritus at New York University, has an American award for quality named in his honor, has written more than 170 scientific papers and several books, and is a management and quality control consultant to major companies throughout the world, he does not distribute a brochure listing his accomplishments. Among those companies which have attended his seminars in great numbers are the most successful and quality-conscious American companies, a veritable Who's Who of American Business, such as IBM, AT&T, Hewlett-Packard, Scott Paper, DuPont, and Procter & Gamble, but he steadfastly refuses to promote himself.
Deming is a remarkable man with remarkable credentials, but one must ask how his advice compares with the practices of Japanese companies. After all, Toyota is widely recognized as having the highest quality cars in the world (those who disagree place Nissan or Honda at the top -- Honda's customer satisfaction exceeds that of Mercedes-Benz). Perhaps Ford should hire Toyota's quality consultant.
This might seem a reasonable approach, especially since the U.S. trade deficit with Japan exceeded an unprecedented $50 billion in 1986 and, despite the yen's dramatic rise against the dollar since then, stubbornly refuses to shrink. Consumers cite higher quality as the main reason they continue to prefer Japanese goods to American goods. Certainly a comparison of the methods advocated by the United States' premier quality expert and Japanese methods would prove instructive.
A good place to start is Toyota's headquarters in Tokyo. The striking thing one first notices in the main lobby is larger than life pictures of three individuals. One is of Toyota's founder, another of the same size is of Toyota's current chairman, and a third, much larger picture, is of W. Edwards Deming.
Is there some mistake? Has Toyota gone mad? Are they paying homage to the competition? No! The picture is there out of respect for the man they acknowledge as having started it all. W. Edwards Deming is the man who taught Japan quality.
After World War II, Deming visited Japan and at the request of the Japanese Union of Scientists and Engineers (JUSE) gave a series of lectures on quality control to Japanese engineers and to top management on management's tasks and responsibilities. Deming predicted that within five years Japan would be economically competitive and that consumers worldwide would clamor for Japanese goods. While many were skeptical, the presence of an American expert was compelling. In order not to lose face they faithfully followed his instructions. Within eighteen months of the first lecture the Japanese saw tremendous improvements in the quality of their goods and in productivity. They beat Deming's five-year timetable with a year to spare.
Few Americans have to be told of the prowess of Japanese business, as it has come to dominate industry after industry, including consumer electronics, motorcycles, automobiles, watches, cameras, and semiconductors. But few Americans realize that Japanese industrial leaders credit Deming with having initiated that success and that the most prestigious award a Japanese company or industrialist can win is the Deming Prize.
What is also too little understood is the role that management has played. All too often American observers cite cultural differences as the reason for the disparity between American and Japanese business practices. But quality management was born in one of America's premier institutions, the Bell Telephone Laboratories of AT&T. Dr. Walter A. Shewhart, a physicist, worked on the problem of quality and uniformity for AT&T's manufacturing arm, Western Electric. His work was found to have great application not just in manufacturing but in the service end of the phone business. For years the American phone system was the envy of the world, providing a level and quality of service unmatched anywhere else.
Shewhart was Deming's friend and associate. Both men, trained in physics, were working in the new field of statistics. When Shewhart published his second book, Statistical Method from the Viewpoint of Quality Control, it was Deming who acted as editor and wrote the foreword.
When Deming joined the U.S. Census Bureau in 1939, he was already the acknowledged world expert in sampling. But the Census Bureau provided an environment in which quality control methods could be employed in a pure service field, with no manufacturing outlet. According to the theory expounded by Shewhart and Deming, as quality improves, costs go down and productivity increases. Quality and productivity can be continually improved. Could the Census Bureau, a government agency, be made ever more efficient and productive? The results were in decades ago. The Census Bureau provided then and provides today a bounty of information of unquestioned integrity at a price that cannot be matched by any other organization in the world, public or private.
Compare this with the Internal Revenue Service, which by its own account has an error rate of more than 25 percent for telephoned inquiries from taxpayers. Congress estimated the error rate at 43 percent. No matter which figure is more accurate, the cost to the IRS and to society is staggering. Are the management styles and methods of the two agencies different? Of course. According to Deming, management is the whole difference. The current predicament we find ourselves in is due to managerial decisions in the public and private sectors at all levels of management.
"Don't blame the Japanese," he says. "We did it to ourselves."
A Busy Schedule
Since 1946 Deming has been a private consultant. While Japan represents the most dramatic, large-scale implementation of his methods and teachings, and Ford is an old-line company transforming itself with startling results, Deming has been helping companies worldwide for decades. Quality has only recently been popularly acknowledged as one of the most pressing issues in business.
In 1980, NBC televised a program called "If Japan Can, Why Can't We?" Deming was prominently featured and his role in Japan was explained. Since that program aired, the demands on his time have greatly increased and his schedule is now booked up to three years in advance.
He gives roughly twenty four-day seminars a year to corporate managers in the United States. Attendance at these seminars ranges from 600 to 4,000. Another dozen or so Deming-trained consultants are reforming the management practices of companies that engage their services.
Before going to Japan in August for the annual presentation of the Deming Prize, Deming visits Australia and New Zealand, where, at the request of government and business groups, he lectures, consults, and encourages change in the practices of those two nations.
Organizations large and small, in manufacturing and in service fields, in the private and public sectors, are slowly changing. In each case, while the actual practices differ, the message is the same. Management is the key difference.
The Source of Profit
Deming's philosophy calls for organizations to produce products and services that help people live better. Providing those goods and services is the raison d'être of an organization. By providing ever-improving services and products, an organization develops loyal customers.
In Deming's philosophy, real profits are generated by loyal customers -- not just satisfied customers. Satisfied customers may try a new product from a competitor or switch to an existing product if the price is right. But loyal customers brag about the goods or services they are receiving. They buy the company's new products with little sales effort, and often bring a friend. Profit from the sale to a loyal customer is six to eight times the profit from other customers. Is this the wishful thinking of an idealist? No! This is the conclusion of the most renowned expert on sampling, who has been called on by virtually all the major consumer research organizations to plan surveys on consumer behavior. It is a well-known fact among those who have studied consumer buying that profits from loyal customers are not only of better quality but many times higher than from the average customer. The company that develops loyal customers has much higher earnings than the company that just pushes the product out the door.
Yet in the purely financial approach a sale is a sale, just a number. The level of customer satisfaction isn't believed to impact on profit.
Driving by Looking Out the Rearview Mirror
From a Deming perspective most managers' view of profit is backward. To Deming, a company continually improving the quality of its goods or services improves its productivity and produces loyal customers. Loyal customers are, in turn, the engine producing increased market share, higher profit margins, higher profits, higher stock price, a secure and satisfied work force, and more jobs.
Too many managers, concerned with keeping the stock price up, increase their profit margins by cutting costs and cutting quality. The inevitable results are a loss of customer confidence and decreased market share and profitability. Large amounts must then be spent trying to regain or increase sales. This, of course, results in decreased profitability.
In the Deming view, increasing the quality of goods and services leads to higher productivity and profitability. The converse, however, of artificially increasing profits, does not lead to better quality or productivity or, ironically, profitability. Instead it leads to the decline of the company. If such a company is competing with a Deming-style company, the decline can be quite dramatic.
A Hypothetical Example, Within a Company
A manager who has had no exposure to Deming theory and has been taught to manage by the visible numbers only will define profit as the difference between revenues and expenses. In examining the income statements and the balance sheet, such a manager sees many items that don't seem to have a direct effect on today's profit. When the pressure is on because of a slowdown in sales, such items as training programs, research and development, aftersales service, and engineering staff become candidates for elimination. In order to meet profit goals, which are set in some arbitrary manner, such as 110 percent of last year's profit, it is mandated that costs be cut by some a...
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Book Description Lyle Stuart, 1990. Hardcover. Condition: New. 1st Carol Publishing ed. Seller Inventory # DADAX0818405198
Book Description Lyle Stuart, 1990. Hardcover. Condition: New. Never used!. Seller Inventory # P110818405198