It's been 10 years since the demise of W. Edwards Deming at age 93—but his principles and methodologies still thrive in many organizations throughout the world. Unfortunately for many in our insurance industry, Deming disciplines are still a "best-kept secret."
Actually, it's really the worse-case scenario in which, as an industry, "We don't know what it is we don't know."
Fortunately, there are notable exceptions. For example, the Willis Group (then Willis Corroon), under the leadership of Vice Chairman J. Bransford Wallace, was among the first (if not the first) to advocate and practice Deming's quality principles. Of course, any General Electric (GE) insurance subsidiary, under Jack Welch's leadership, evolved into a culture based on Deming principles.
What's fascinating about GE is the high number of GE vendors, including insurance managing general agents (MGAs) representing GE insurance organizations, who found themselves expected by GE to practice GE's quality model. And, of course, they did—to their great benefit!
One employee of a GE insurance subsidiary told me each and every employee was expected to demonstrate improvement of two processes each year. This is commendable and highly consistent with #5 of Dr. Deming's 14 points—something discussed more thoroughly below.
Smaller organizations, including local and regional insurance brokers and agencies, find Deming's teachings highly valuable in maximizing both employee morale and company profits. The Massachusetts agents/brokers association developed a program to recognize and honor high-performing agencies programs based on Malcolm Baldrige National Quality Award criteria.
Today, a decade after Dr. Deming's death, his quality principles continue to transform individuals and organizations. He's best remembered for guiding Japan in their amazing turnaround after World War II. With his counsel, Japan's automobile and high tech industries became fierce, global competitors. (It's too bad their banking sector didn't follow suit, otherwise they may have avoided their more recent financial debacle.)
In 1980 Dr. Deming returned to the United States and told his story in an NBC white paper entitled, "If Japan Can, Why Can't We?" Shortly thereafter, both General Motors and Ford retained him to save our domestic auto industry. Ford CEO Donald Peterson listened and benefited. Ford had a new CEO during the 1990s who didn't follow Mr. Peterson's example. Now it's likely Toyota will surpass Ford in capacity.
What's the Problem?
Dr. Deming has been seriously misunderstood by executives who seek quick fixes. Some adopted his principles, and their firms benefited. Others mistakenly characterized him as a quality-control guru and father of Total Quality Management. Neither is true.
According to Silicon Valley management consultant, Marcia Daszko, "Leaders need to think about thinking differently—about leading, learning, improving, and innovating together. Traditional American executives focus on a bad economy, downsizing, layoffs, and cutting costs. Leaders who apply Dr. Deming's theories create new opportunities and better futures. The "no-brainer" solution is to adopt what Deming taught.
Why Are Too Few Executives Leading?
Ms. Daszko says, "Leadership takes guts. Whether a Navy admiral, corporate CEO, or school superintendent, a leader needs to continually learn and think. A true leader does not hide behind arrogance, titles, rank, greed, or controlling attitudes."
I personally believe there's a strong convergence of quality, leadership, and ethics. Think about Ms. Daszko's litany of negative leadership characteristics and this three-way convergence in the wake of Enron, Arthur Andersen, Tyco, and other recent leadership failures—not to mention the current mutual fund scandals. Do you see a correlation and an almost predictable outcome?
Deming's writings tell us people work hard and put in their best efforts, yet still fail. Why? They attach strategic plans to fads that won't work. Mr. Daszko concludes, "Real leaders commit to humbly learn new knowledge based on a theoretical foundation."
What's So Special about this Approach to Leadership and Management?
What's needed is continuous improvement of an organization's systems and processes by reduction of variation so output is more predictable and expectations of customers are met if not exceeded. That's a "theoretical foundation," in my humble opinion.
The essence of Dr. Deming's theories is found in his highly regarded "14 points"—what he characterizes as "the basis for transformation of American industry." I'd add that it's also the basis for transformation of you and me, on an individual, personal level as well.
I'll list them here in condensed form. Then, in future articles, I'll illustrate each with Dr. Deming's more expanded version and with examples from insurance organizations, including perhaps a few insurance buyers.
Talk about universal application! The 14 points, Dr. Deming tells us, "apply anywhere, to small organizations as well as to large ones, to the service industry as well as to manufacturing. They apply to a division within a company."
The last point he makes is key. If a company wants to "test" these theories before inculcating an entire organization and its culture, it's okay! In fact, as you'll learn (or already know) this is one of his theories called the PDCA cycle (Plan - Do - Check - Act) . . . also known as the Shewhart Cycle or the Deming Cycle, i.e., test on a small scale before implementing on a large scale.
Here's the condensed listing, in Dr. Deming's own words.
- Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.
- Adopt the new philosophy. We are in a new economic age. Western management must awaken to the challenge, must learn their responsibilities, and take on leadership for change.
- Cease dependence on inspection to achieve quality. Eliminate the need for inspection on a mass basis by building quality into the product in the first place.
- End the practice of awarding business on the basis of price tag. Instead, minimize total cost. Move toward a single supplier for any one item, on a long-term relationship of loyalty and trust.
- Improve constantly and forever the system of production and service, to improve quality and productivity, and thus constantly decrease costs.
- Institute training on the job.
- Institute leadership. The aim of supervision should be to help people and machines and gadgets to do a better job. Supervision of management is in need of overhaul, as well as supervision of production workers.
- Drive out fear, so that everyone may work effectively for the company.
- Break down barriers between departments. People in research, design, sales, and production must work as a team, to foresee problems of production and [problems] in use that may be encountered with the product or service.
- Eliminate slogans, exhortations, and targets for the workforce asking for zero defects and new levels of productivity. Such exhortations only create adversarial relationships, as the bulk of the causes of low quality and low productivity belong to the system ands thus lie beyond the power of the workforce.
- (a) Eliminate work standards (quotas) on the factory floor. Substitute leadership. (b) Eliminate management by objective. Eliminate management by numbers, numerical goals. Substitute leadership.
- (a) Remove barriers that rob the hourly worker of his right to pride of workmanship. The responsibility of supervisors must be changed from sheer numbers to quality. (b) Remove barriers that rob people in management and in engineering of their right to pride of workmanship. This means, inter alia, abolishment of the annual or merit rating and of management by objective.
- Institute a vigorous program of education and self-improvement.
- Put everybody in the company to work to accomplish the transformation. The transformation is everybody's job.
There you have it! Do you see anything just a little controversial or in direct opposition to conventional wisdom?
Considering his direct attack on management by objectives (MBO), it's fascinating to know that even MBO's "creator," Peter Drucker, concurs with Dr. Deming on this point and, most importantly, his (Dr. Deming's) preference for continuous improvement of systems and processes that renders MBO unnecessary in its explicit shift from management to leadership. Managers still need to measure success by objectives but leaders have the higher obligation and role of the Deming model.
As Dr. Myron Tribus, a Deming disciple and former Xerox executive says, "Focusing on results is like driving your car by looking in the rear view mirror." This metaphor is often used to differentiate finance from accounting. In this case, it's saying that viewing results in this manner is highly reactive behavior. The better solution lies in the proactive leadership of structuring systems and designing processes to minimize variation and thereby enable employees and teams to accomplish necessary and desired outcomes.
But more on this later. Please stay tuned for the next installment in this series.
If you want to learn more about quality and its applications in the insurance industry, contact the Institutes (American Institute for CPCU and Insurance Institute of America) for data on their program Delivering Insurance Services (AIS-25).
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