Buy Out of the Crisis on Amazon.

Out of the Crisis is a classic of the quality movement that the Toyota Production System was borne out of. Deming was really one of the founders of that movement and one of the first people to somewhat intuitively grasp the complexity of modern businesses and what that required from management to adapt.

Though this book (written in 1982) is clearly directed at physical manufacturing businesses, it’s pretty easy to see how they apply to pretty much any business.

A simple but profoundly true example:

Defects are not free. Somebody makes them, and gets paid for making them. 

Low quality means high cost because consumer expectations don’t change, they want the same quality. If you mess it up, then you pay for rework. What was expensive about our onboarding process is how much rework had to be done.

This seems obvious in manufacturing, but consider this example from a retail business:

I ordered from a bookstore one case of twenty-four count inch ring notebooks. Instead, twelve came. 

On complaint, the bookstore sent the other twelve. I inspected every notebook and found one where the rings were stationary in the open position, useless to me. Twenty-four notebooks qualified me for a discount. The store charged me the full price, with the explanation, when I mentioned this, that the girl that took the order was new. 

This is an all too common experience that I bet everyone has had. The business owner and or employees give the gold ole “we were trying our best and it’s not our fault.” However, the customer doesn’t care. They overpaid for poor service.

But the fact remains that the correction of the error in the bill, and replacement of the defective notebook, must have wiped out the profit on the sale and left the customer with a resolution to try some other stationer on future orders. 

This is a good example because it seems like such a little thing, the kind of thing that would go unnoticed by most people. But, these issues tend to be systematic in my experience. The business that has the issue is likely to have many other similar ones. As the saying goes, there is never just one cockroach in the kitchen.

To restore quality, Deming lays out his 14 points that companies must follow. One of my favorites is 5:

Improve constantly and forever the system of production and service

…

Putting out fires is not an improvement of the process. Neither is discovery and removal of a special cause detected by a point out of control. This only puts the process back to where it should have been in the first place

This was known in the Toyota Production System as kaizen, continuous improvement. It is an essential operating principle, every time something goes wrong you need to identify it and do a root cause analysis until everyone in the business understands that this will be how things always work.

Another personal favorite, point 9:

Break down barriers between staff areas … Servicemen learn from customers a great deal about their products. There may unfortunately be in some companies no routine procedure for use of this information. In one instance, the service department, in response to frantic calls from customers, had routinely cut off a tube that conveys abrasive material to a downward outlet, and reversed the auger beyond the outlet. 

The problem was that the auger jammed the material into the end of the tube. The manufacturing department kept right on making the auger as always before, while the service department, on a call from a customer, routinely made the correction. The management were unaware of the lack of teamwork between manufacturing and service, and of the loss.

This is, in a sense, a continuation of the same point. It is essential as a company scales that they have processes and a culture for any time something goes wrong that it gets communicated to someone that can solve the root cause. Putting out fires gets you zero points, a well-operating company requires that you must be a fire prevention specialist.

Deming, and the quality movement more generally, was in some way a reaction to the authoritarian high modernism of Taylorism which tried to reduce all business down into spreadsheets.

The notion of quality, the things that cannot be measured, is an essential counterpoint.

The most important figures that one needs for management are unknown or unknowable … but successful management must nevertheless take account of them.

Examples:

1. The multiplying effect on sales that comes from a happy customer, and the opposite effect from an unhappy customer. …

2. The boost in quality and productivity all along the line that comes from success in improvement of quality at any station upstream

The first five chapters of this are excellent and broadly applicable to all businesses. I found the later parts of the book didn’t age quite so well and were more directed at more traditional businesses.

Last Updated on May 25, 2022 by Taylor Pearson