Friday, December 31, 2004

The Greatest Wall Street Danger of All: You

Topic: Investing

re: Born Suckers - The greatest Wall Street danger of all: you by Henry Blodget.

Henry Blodget mentions two profoundly (though simple) important factors that lead to poor investment decisions: Prospect Theory and Outcome Bias. He lists 7 factors, I find two profound.

Prospect Theory (more details) essentially states people are eager to "lock in gains" (sell positions with profits to realize gains) and hold losses (deffer selling positions in which they have losses so as not to "realize" the loss). Like many profound ideas the simplicity of the idea undermines the importance. This factor can make a huge difference in investment results. Many of the most successful investors understand the importance of this idea. And they repeat the importance of taking action to avoid falling into the patterns prospect theory predicts.

William O'Neil (founder of Investors Business Daily) - "
Remember, 7% to 8% is your absolute loss limit. You must sell without hesitation - no waiting a few days to see what might happen or hoping the stock rallies back; no need to wait for the day's market close" page 90, How to Make Money in Stocks: a winning system in good times or bad, 3rd Edition, 2002.

From The New Market Wizards: Conversations With America's Top Traders by Jack Schwager
Schwager: "What else have you learned from Soros?"
Stanley Druckenmiller: "I've learned many things from him, but perhaps the most significant is that it's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong." (page 207)
This is obvious, so what value does it offer? As Prospect Theory states peole have a tendency to sell profits and hold losses. Often this means you make less when you are right. It can also mean you loss more when you are wrong (because you are reluctant to sell - I must admit I can still fall into this trap).

Outcome Bias - "We tend to evaluate decisions based on outcomes instead of probabilities. Thus, we congratulate ourselves for stupid choices that happen to turn out well and vow to never again make smart choices that happen to turn out badly." from Born Suckers. For example, I decide to thrown a dart at the newspaper and move all my portfolio into the one stock that is hit. If that stock is the best performer of the year I will have very good results, however, the that will not be due to my great decision but luck. Luck is a factor in investing, but the way to achieve exceptional performance is to developing investment strategies that give you an advantage in the market.

I have used an online portfolio management and performance tracking tool for several years: Marketocracy. It is a tool that helps me learn, by seeing the real results of my investing decisions. It is also a great way to provide others a view of how my ideas have played out as measured by Marketocracy. My marketocracy fund has beaten the S&P 500 by an average annual rate of 10.32% (as of this posting) since it was started in 2000.

One final thought on investing from Jesse Livermore (as remembered by his sons) - From page 141 How to Trade in Stocks: "the stock market must be studied, not casually either, but deeply, thoroughly. It's my conclusion that most people pay more care and attention to the purchase of an appliance for their house, or when buying a car, that they do to the purchase of stocks. The stock market, with its allure of easy money and fast action, induces people into foolishness and the careless handling of their hard-earned money, like no other entity."

Good investing to you in the new year.

Monday, December 20, 2004

Google Photo Management Software - Picasa

Topics: Freeware - Photos

I am a big fan of Google, the search engine, and the company. Google bought Picasa, digital photo management software, a few months ago and decided to give the software away as freeware. I just got around to downloading Picasa. My initial reaction is that this is a wonderful product. I suggest you give it a try. It can automatically inventory all the images on your computer and it does a great job of organizing the photos for you.

The only Google service I would not recommend at this time is their desktop search software. It is amazing powerful and seems like it could be a great help. But it seems to me to the possible security issues warrant holding off using it until they improve the software, which I am confident they will do.

This Blog, is run on Blogger, another Google purchase. Blogger is good but I sure hope they offer some enhancements fairly soon, especially the ability to assign topics to individual posts (like the labels they use in Gmail).

One one final Google not, if you would like an invitation to get a free Gmail account (Google's email service), just let me know and I can send you an invitation (until I run out of invitations).

Happy Holidays,

Sunday, December 19, 2004

Adventure Capitalist and China Wakes

Topic: Books - Economics

I recently read two books that offered perspectives I found worthwhile and were enjoyable to read.

Adventure Capitalist by Jim Rogers tracked his trip around the world by car. Previously he had documented his around the world motorcycle journey in Investment Biker. His views offer a worthwhile perspective that is often missed, in my opinion. That said I wouldn't accept his views as the final truth they are valuable as one perspective to shed light on areas that are often overlooked.

China Wakes, by Nicholas Kristof and Sheryl Wudunn documents their time as Journalists in China (1988-1993) and again offers valuable insight into China. Obviously even gaining an incredibly oversimplified view of China would take a great deal more than one, or even ten books. Still the authors provide viewpoints that I found added, in a small way, to a picture of what China, was, is and may become. I plan to read their book:
Thunder from the East: Portrait of a Rising Asia.

Saturday, December 18, 2004

Big Cats in America

Topic: Miscellaneous

I found a recent Washington Post article interesting: Mountain Lions Move East, Breeding Fear on the Prairie. Many new realities are suprising. Some are historically important worldwide like the fall of the Berlin Wall. Others are not as significant but still something I would have thought extremely unlikely such as the return of Cougars to a wide range of the United States. I would have thought big cats would be found only in Zoos and in the remote West and in East Africa, of course.

I suppose I shouldn't be so suprised since for years I have heard we have far more deer today than ever before. Still I would not have predicted the wide spread return of big cats we seem to have experienced in the last few decades. I don't recall hearing about this before this year, when I started to read and hear about the increased human and big cat interactions resulting from the increased population of cougars (also known as pumas or mountain lions).

I would imagine we will have people overact when the inevitable problems are covered by the news media. "It is exceedingly rare for a mountain lion to kill a human being. In the past 110 years, the cats have attacked 66 people and killed 18 in the United States and Canada, according to figures compiled by Iowa's Department of Natural Resources. Fatal attacks are far less common than fatal bee stings or lightning strikes."

Related Links:
- Big Cat Comeback? 2004
- Cougar Reports on the Rise in Eastern U.S. - National Geographic 2003
- Mountain Lion Foundation
- Mountain Lion Attacks On People in the U.S. and Canada
- Outdoor Hazards - shows the number of human deaths annually in California (100 deaths from automobile collisions with deer, 86 from lightning strikes, 18 from dogs, 1/3 fom mountain lions [1 death every 3 years])

Wednesday, December 08, 2004

Management Improvement Articles

Topic: Management - Library Additions

The articles added to our library this month are especially good, in my opinion. Recent additions to the Curious Cat Online Management Improvement Library include:

* A Brief Guide to Interactive Planning and Idealized Design by Russell L. Ackoff
* Improving Problem Solving by Ian Bradbury and Gipsie Ranney
* How To Compare Six Sigma, Lean and the Theory of Constraints by Dave Nave
* In the Beginning by A. Blanton Godfrey
* A Holistic View of Six Sigma by Roger Hoerl and Ronald Snee (this is a chapter from there excellent new book: Six Sigma Beyond the Factory Floor.

Find links to these, and other new additions, on the Curious Cat Management Improvement New Articles Page or search for management improvement articles. Please contact me, if you are interested in having us include your article in the library.

John Hunter

Tuesday, November 30, 2004

Economics - America and China

Topic: Economics

Business Week has several good articles on the topic of China's Economic impact including: Shaking up Trade Theory and The China Price.

In Shaking up Trade Theory Aaron Bernstein explores: "The fact that programming, engineering, and other high-skilled jobs are jumping to places such as China and India seems to conflict head-on with the 200-year-old doctrine of comparative advantage." Over the last few years the white collar job losses in tech US have seemed to cause quite a bit more concern than the manufacturing and other job losses of the 1980s and 1990s. His article does a good job of exploring this issue within the limits of a short magazine article.

He captures the surprise economist (in the US) see because "Conversely, India, where just a fraction of its 400 million-plus workers have gone to college, should grab the low-skilled work and leave higher-end products to the U.S." That conflicts with the data that many high skilled jobs are going to India (and elsewhere). The US Economists don't seem to realize India is producing as many college educated engineers as the US. So India also has hundreds of millions of low skill workers that doesn't mean they don't also have plenty of high skilled worked (that speak English, which is, of course a huge benefit that is less true of Chinese high skilled workers).

Ok, I need to do better research but he is one source: "I know that US production of engineers declined from about 80K (in '85) to about 65K - but is back up to about 75K in the latest data. For context, however, the production of engineers is over 200,000/yr in each of China and India."
Wm. A. Wulf, President, National Academy of Engineering (United States) in talk entitled: Out-sourcing/Off-shoring of Engineering Jobs.

Basically the United States is not the only country that realizes it is a great things for your economy to have highly skilled people who can provide high value and receive high compensation. The benefits of highly skilled people to an economy is huge. The United States has proven very effective at providing personnel to fill many of these jobs. However, many others are going to make considerable efforts to compete for these jobs.

It seems to me American economist have equated comparative advantage with America gets the best deal and others do better than they would without free trade but less well than the United States. I don't believe that is a given. I have been thinking about the recent economic events and the theory of comparative advantage recently. In a world where it might become possible to produce an huge quantity of goods and services with a fraction of the population I think strange effects may take place. I have to give this a great deal more thought.

American's may have to face the possibility we don't automatically get to be the richest with ever increasing economic bounty. The United States will continue to be economically wealthy, however, I would not be surprised that the relative wealth of the United States declines. We continue to reap huge economic rewards far exceeding those of most others. America has shown a great ability to continue to succeed economically exceptionally well compared to the rest of the world. I think there are many reasons to be optimistic about the economic future of America. However, I think the future will be one in which the United States has to react to forces much more powerful than itself which is not something America is used to.

Some seem to look at the gains in India, China, Singapore, Japan, etc. with the feeling that what is rightfully America's is being taken. I don't see that as the case. There are many interesting factors to consider on the present and future of the economic state of America. I hope to have some time to gather my thoughts on these topics and share them here. The idea that America would do better by trying to reduce international ties is a mistake.

My guess is that the United States of America's economic success will continue. However, I think more economic benefit will accrue to the American economy, in the next 20 years from the improved products and services created elsewhere, and in America, (getting better good and services at lower prices) than it will by increasing our productive ability (increased earnings of employees). Also America will reap great benefits form the huge wealth currently held. Assets owned by Americans are likely to do very well and benefit from the more rapid growth in other countries. There risks and segments of the economy face very trying times. Low skilled workers may have great difficulty making economic gains. Even high skilled workers may have trouble living as lavishly as they would like to. However, if you were to chose one country to start life in 2005, based on the likelihood of economic success, the United States would be among the candidate countries.

Thursday, November 18, 2004

Hack your way out of writer’s block

Topic: Miscellaneous

I thought this post, from 43 folders, on writer's block, had some good ideas. If you are suppose to be witting something and instead are reading this blog perhaps you should take a look at the ideas offered and see if they help you get back on track.

Thursday, November 11, 2004

Management Improvement Articles

Topic: Management - Library Additions

Recent additions to the Curious Cat Online Management Improvement Library include:

* Race for Quality Knows No Finishing Line by Venkatachari Jagannathan
* Business Needs Determine What Black Belts Need to Know by Ronald D. Snee
* Opportunities and Challenges for Industrial Statisticians in the 21st Century by Gerald J. Hahn
* Innovation as a Deep Capability by Gary Hamel

Find links to these, and other new additions, on the Curious Cat Management Improvement New Articles Page or search for management improvement articles.

Wednesday, November 10, 2004

Google index reaches 8 billion

Google Blog reported that the number of documents included in the Google index now exceeds 8 billion. "Today that number nearly doubled to more than 8 billion pages."

Monday, November 01, 2004

A9 Toolbar for Firefox Browser has released their A9 toolbar for the new Firefox 1.0 browser. The A9 toolbar has a number of handy features. I am most glad to see the increasing support (which will only encourage more use of the great, free, open source Firefox browser. The Google toolbar should provide such support soon, I would hope.

Some people don't like all the information Amazon gathers by tracking your use of the toolbar. Luckily, you can chose not to use it if that worries you. The toolbar has some nice tools, but it certainly does not contain anything that is tough to live without.

Sunday, October 17, 2004

2004 Deming Prize Awardees

Topic: Management

2004 Deming Prize announcement - JUSE (Union of Japanese Scientists and Engineers)

This year again provided impressive showings by India and Thailand: of the 6 awards 3 went to Indian Companies and 3 went to companies in Thailand. And this is not a fluke, a unit of the TVS group (India) has been awarded in each of the last four years, see, "Deming medal for Lucas TVS and SRF."

2004 The Deming Prize for Individuals
- Mr. Akira Takahashi, Senior Adviser to the Board, Denso Corporation (Japan)

2004 The Deming Application Prize (alphabetical order)
- CCC Polyolefins Company Limited (Thailand)
- Indo Gulf Fertilisers Limited (India)
- Lucas-TVS Limited (India)
- Siam Mitsui PTA Company Limited (Thailand)
- SRF Limited, Industrial Synthetics Business (India) SRF press release – pdf format
- Thai Ceramic Company Limited (Thailand)

In recent years, Thailand and India have been the home to nearly all awardees: 6 of 7 in 2003, 2 of 2 in 2002 and 3 of 4 in 2001. Prior to this new trend, nearly all awardees were based in Japan, the exceptions being:
- Sundaram-Clayton Limited Brakes Division (India) 1998
- AT & T Power Systems (U.S.A.) 1993
- Philips Taiwan, Ltd. (Taiwan) 1991
- Florida Power and Light (USA) 1989

Find online Deming resources: Curious Cat Deming Connections
Full List of Deming Prize Winners

Thursday, October 14, 2004

Taguchi Loss Function

Topic: Management
Written in response to this post on the DEN. The reponses on this topic show the strength of the DEN.

1) thoughtful responses that should help the person posting the original message
2) thoughtful responses that are of interest to many of us
3) the chance to explore concepts in some greater depth than we may otherwise

Relating to the 3rd item in my list I would like to explore part of Myron's response. "Loss functions are highly personal. To ascribe a loss function to society requires plenty of hutzpah!" I think, the Taguchi Loss Function is meant to show the loss to society as a whole. My understanding, is that the Taguchi Loss Function is meant to show the overall quantifiable loss to society.

I must say that while viewing the overall loss to society is worthwhile, I think it is often more useful to see (or think of) the losses to each of the various parties. I believe this for the following 2 reasons.

First, to ascribe the loss to society, as Myron notes, requires plenty of chutzpah and I think is often going to lead to attempts to quantify impacts that are difficult to quantify. My understanding is that the Taguchi Loss Function limits the losses to quantifiable losses. If the losses are actually quantified then it should be a simple matter to include whatever losses you choose to get a picture of the factors you wish to focus on, which is good.

However, in practice, I have seen the concept of the Taguchi Loss Function used quite a bit. I have never actually seen any losses quantified and totaled and shown on a graph. I think focusing specifically on who suffers a loss and what that loss could be, can help. I think actually quantifying the losses to society can be daunting. So, while I see the value in framing the concept that way I think to actually get the losses quantified you are best served by starting with those closest to the process and then adding additional loses to those results.

Second, if you attempt to use the concept to help you manage (as a guide in decision making) the impacts to society are a factor, but, I think the loss to your company, the customer and perhaps the end user are most important. A negative impact to society at large is not going to have the same impact to a decision maker as the same negative impact to the customer. The decision maker will likely be willing to invest more to reduce the loss to a customer than to society at large (and that seems logical and sensible to me).

I believe the Taguchi Loss Function is a great conceptual model. I also think it is important to understand that the shape of a loss function in any situation depends on that specific situation. A parabola does a good job of illustrating the concept that loss is normally not binary and often increases somewhat slowly very close to the optimal result and more dramatically as the deviance from the optimal result increases. The loss is often not equal on either side of the optimal result in which case a parabola would not be the best model.

The import factor when making a decision, in a specific case, is to look at the losses that actually exist for that case. And, in my opinion, knowing where the loss is felt matters – so only viewing the overall loss to society is not sufficient. However, this concept is not part of the Taguchi Loss Function, but rather, is my opinion of how the concept can be applied most effectively. And while the concept of the Taguchi Loss function does a great job of showing why specification limits are not sufficient to good management, it is true that is some situations the loss can be pretty much binary, good (no loss) or bad (100% loss) with little, or no, “grey area.”

John Hunter

Monday, October 11, 2004

Management Improvement Articles

Topic: Management - Library Additions

The Curious Cat Online Management Improvement Library includes hundred of online documents that have been individually selected as worthwhile for those interested in improving performance. Many of the documents we include are new, but many were written years or even decades ago (such as the article noted below by Sir R. A. Fisher written in 1947 where he sets the stage for Design of Experiments which is a critical part of Six Sigma improvement efforts). While many good ideas are new, we also believe management practice could be greatly improved by applying ideas that were expressed long ago.

Recent additions to the Curious Cat Online Management Improvement Library include:

* A Day with Dr. Russel L. Ackoff - Video by Dr. Russel L. Ackoff
* Development of the Theory of Experimental Design by Sir R.A Fisher
* The Leadership of Profound Change by Peter Senge
* The Oversight Fallacy by Peter Block
* The Old Guard vs. the Vanguard by Gary Hamel and Lloyd Switzer
* Six Sigma and the Bottom Line by Soren Bisgaard and Johanees Freieslsben

See links to these, and other new additions on the Curious Cat Management Improvement New Articles Page or search for management improvement articles.

Saturday, October 09, 2004

NYC Travel Photos


In August I spoke to the Fordham University Deming Scholars MBA Program. I spent the weekend with my brother's family in Brooklyn. The photo to the left shows my nephew at the Statan Island Children's Museum. The photo accurately conveys my weekend as I stuggled to keep up with his blur of activity.

See more photos: Curious Cat NYC Travel Photos

Wednesday, September 29, 2004

How to Create Unethical, Ineffective Organizations That Go Out of Business.

Topic: Management

Comment on How to Destroy Morale #1 from the excellent Agile Management Blog.

If you want to learn to be more like Morris the Deming Institute has a seminar for you: How to Create Unethical, Ineffective Organizations That Go Out of Business. Full disclosure, I played a small part in helping design the seminar. Serious the seminar is designed to help managers focus on the poor practices most complain about in the morning and then tolorate or actual pactice in the afternoon. The seminar is designed to provide practical alternatives practices that will improve results.

Robert Rodin will speak on his experience as the CEO of Marshall Industries at the seminar. He wrote an excellent book on the experience of transforming Marshall Industries: Free, Perfect and Now.

John Hunter

Thursday, September 23, 2004

Management Improvement History

Topic: Management Improvement

Originally posted to the Deming Electronic Network, 22 Sep 1999, in reponse to this message

I would like to say that I think it is good that we have disagreements on the DEN. I think it is a strength of the DEN, not a weakness. However, I think we sometimes get to personal with no real purpose. One example of this, for me, is: "Well, I guess we knew different Demings. Mine was a teacher named Dr. W. Edwards Deming." I doubt this statement is meant to be taken literally, and if it is not I do not see what it adds to the discussion. I point this out not because I think this is some bad act that should be punished but that I think we need to continue to develop a sense of how we wish to express our disagreements and I think that we should try to do so more constructively.

>>> "For the past 60 years we've been looking for the magic bullet that will improve the quality of our products, services and lives. In the 1940s, we applied statistics through sampling, SPC and design of experiments to improve our products. In the 1950s, we used quality cost and total quality control to bring about quality improvement. In the 1960s, zero defects and MIL-Q-9858A drove the quality improvement process. In the 1970s, quality circles, process qualification and supplier qualification became key quality issues. In the 1980s, employee training in problem solving, team activities and just-in-time inventory were the things to do."

I find this statement so far from the truth that it would seriously damage any PDSA with this as an accepted assessment of history. I do not believe Deming had such an inaccurate view (of course I may be wrong). I do believe we need to improve our practice of Quality (and to do that we need to understand what happened in the past and why it was not more successful). The idea that Design of Experiments (DoE) was at the core of some Quality Movement to me is not at all accurate. In my experience only a few Quality professionals today understand what it means and how it should be applied. The idea that it was common place in the 40's I seriously doubt (though I don't have first hand knowledge of this). I find it difficult to believe we would have decided to stop using DoE if it was commonly done previously. The understanding I have from those that should know (like George Box and previously my father - Bill Hunter) is that it was not at all common practice and still is not outside of a few industries and even there it is isolated in the domain of a few experts.

I do have first hand knowledge of the 80's and the idea that we did "employee training in problem solving, team activities and just-in-time inventory" well is not even close to accurate. We sent people to training on these things but other than JIT inventory the effectiveness of these efforts were poor (with a few exceptions that really did well).

"Quality" is not being practiced anywhere close to the level with which I am satisfied with in more than a few organizations. We have huge improvements to make in the practice of DoE, SPC, process improvement, having decisions made by the appropriate level (as close to the issue as possible), leadership, teamwork, data based decision making, the use of basically all the Quality tools, systems thinking, transformation... We are much closer to the 3rd grade level in the practice of Quality Management than we are to doing so well that we now need to shift our focus to new problems (I also think Deming understood that we have not come close to applying his ideas asthey should be applied - within a system…).

In my opinion, the main reason 6 sigma is doing so well is because it does a better job at actually getting the tools used (it would be best to transform the organization but if that is not going to happen - which is a safe bet for most every organization - 6 sigma does a good job of getting the tools used successfully). I have problems with 6 sigma but overall I think the reason it is popular is precisely because the paragraph above is wrong. We talked a good deal about some of those issues in some of those decades but we did notcome close to adopting them as our way of doing business.

If someone missed out on the idea that creating joy in work and other "obligations to humanity" were part of quality in the 80's and 90's I don't see how casting it as some new idea is going to get us to focus on it. One of my problems with 6 sigma is what I think is a lack of focus on these important ideas, I could keep going but I have to end sometime so I will.

John Hunter
Curious Cat Deming Connections

Sunday, September 05, 2004

Curious Cat Article Connections

Topic: – New articles section

We have added a new section to our web directory, Curious Cat Cool Connections. Curious Cat Article Connections provides focused topical collections of articles, reports and web sites on topics including: investing, management, health care and technology.

Since the topics included just reflect what happens to spark my interest, it likely will retain an acclectic nature. I select related documents that I find worthwhile on each topic. Feel free to send me links to articles you would like to see include using the feedback option (found on the footer of every page of the site or here).

John Hunter

Thursday, September 02, 2004

New Management Improvement Library Articles

Topic: Management - Library Additions

The Curious Cat Online Management Improvement Library includes hundred of online documents that have been individually selected as worthwhile for those interested in improving performance. The articles, reports, files, handbooks and guides touch on many areas of management improvement including: Customer Focus, Systems Thinking, Understanding and Managing with Variation, Six Sigma, Design of Experiments, Statistics, Innovation, Creativity, Pychology, Joy in Work, Continual Improvement, Mistake Proofing (Poka Yoke), Leadership, Teams, Process Improvement and Project Management.

Recent additions to the Curious Cat Online Management Improvement Library include:

  • Six Sigma Sharpens Services by Zachery Brice
  • Quality Best Practices in Government by Thomas J. Mosgaller
  • Inside the Mind of Jeff Bezos by Alan Deutschman
  • Making the Business Case for Agile Management by David J. Anderson (on software development)
  • My Thoughts after 6 Sigma Conference by John Hunter

For links to these, and other new additions, visit the New Additions page of our library. Please contact me, if you are interested in having us include your article in the library.

John Hunter

Sunday, August 29, 2004

Dangers of forgetting proxy nature of data

Topic: Management - Data
Written in relation to a thread (Staff Attitude) on the Deming Electronic Network (but the DEN archive seems to indicate I never posted this message).

We use data to act as a proxy for some results of the system. Often people forget that the end result is not for the number to be improved but for the situation to be improved. We hope, if the measure improves the situation will have improved. But there are many reasons this may not be the case (one number improving at the expense of other parts of the system, the failure of the number to accurately serve as a proxy, distorting numbers, etc.).

I find something I learned from Brian Joiner an excellent summary - which I remember as:

Data (measuring a system) can be improved by

1) distorting the system

2) distorting the data

or 3) improving the system (which tends to be more difficult though likely what is desired)
Brian Joiner's book, 4th Generation Management is a great book for managers.

It seems to me another danger to examine when looking at "results" is whether the proxy nature of the measure is deminishing. It seems to me the situation where turnover increases because people are "growing" (and therefore the assumed value as measure of employee dissatisfaction is diminished) is a situation where the system changes and reliance on the proxy of turnover to measure dissatisfaction breaks down.

This, to me, relates to the concept that all models are wrong but some are useful (which I learned from George Box) and leads me to believe that measures such as turnover and sick leave use can be valuable. And can be helpful in measuring the results of attempting to improve the system.

Another version of that concept states that all models are wrong but in a given world a model may be useful. In a certain state of equilibrium it may be that you could track increases in turnover (and use it as a proxy for employee satisfaction) even if that was not perfect measure for why all turnover happened. But then once the system shifted to a new state the turnover rate no longer served as an effective proxy. Reality is always more complex than the measures we use to try and understand it so even while the model is useful it is not a completely accurate representation of reality.

It seems to me that once we begin collecting data we often put very little thought into whether the data continue to be valuable (assuming we did so to begin with) and continue to serve the purpose they once did. And we often fail to explore whether changes in the numbers (which we call results) are representative of the "true results" of the system or they fail to do so.

Friday, August 27, 2004

Six Sigma and Deming Philosophies

Topic: Management - Six Sigma and Deming
Post of 23 Oct 2003 message to the Deming Electronic Network to this blog. View DEN thread

My oversimplified view is that the Deming philosophy aims to improve the system and Six Sigma is about improving within the current system. I think several Six Sigma efforts over the past 10 years have improved upon what many organizations tried with TQM, in large part by

1) putting substantial effort (significant training and application) into using statistical tools to improve

and 2) more focus on results (especially short term results)

Unfortunately I think even the best Six Sigma efforts don't lead to the organizational change that is needed (and while the focus on results can help it can also do damage - especially a short term focus). To be fair, I believe most proponents of Six Sigma would claim it aims to improve the system. I think most implementations of Six Sigma have too great a focus on money and too small a focus on the customer and systemic improvement. In addition, it has too great a focus on the measurable and too little focus on the unmeasurable.

However, at this point, I think the Deming philosophy has too few good examples of successful application. To me this is a negative aspect of the philosophy - I believe the value in improving management is in actual real world improvement. I realize, the lack of examples, does not prove the philosophy is poor or invalid. I do believe the relative sparsity of adoption is a weakness in the philosophy. Deming said "I never said it would be easy" (I am quoting by memory so feel free to correct me). The philosophy would be improved if people can find ways to make it easier to adopt. It may be just not be possible to make it significantly easier, or it may just needs to be continually improved for 50, 100 years or more before it will be adopted more completely in more organizations.

I think, for the last 20 years the Deming philosophy has had the most impact in the world through inspiring thought leaders and pioneering managers to adopt new ways of thinking and incorporate some of Deming's ideas in their organizations or their management philosophies. From them, pieces of Deming's philosophy has had a significant impact.

For selected online Six Sigma resources, articles, etc. see:

and selected online Deming resources, articles, etc. see:

John Hunter