Shortcomings of the traditional company management cycle

by
Tito Conti
President of the European Organization for Quality (1992 to 1994)
President of the Italian Association for Quality (1997 to 2000)
VP of the International Academy for Quality

The introduction of a well-structured phase of planning in the company annual management cycle was a fundamental achievement of the years 1950s - 1970s, the high development season following the Second World War. Large companies learnt how to develop their long and medium range strategic plans and derive from them the short range, operating plan for the coming year, with the associate budget. Many SMEs followed that trend in the last decades.

We can call "PD" the annual management cycle composed by the Planning (P) phase (that typically takes place in the September - December period when the fiscal year is from January to December); and by the Execution phase (D = Do) that covers the whole year.

Such management cycle presents two major problems. The first is related to the planning process itself and its link with the execution phase. A critical point of the planning process was - and still is - aligning operations with strategies; i. e. reaching total consistency between the strategic plan, the operating plan and the execution processes. The ideal company is able to link and harmonise all its parts and activities as the orchestra director does by integrating the players and the instruments into a harmonic whole. But many companies are still unable to do that.

Advances in quality management, in particular the push for continuous improvement of the 1970s and 80s, accelerated the development of sophisticated tools for better aligning actions to strategies. Policy Deployment was the name given by the Japanese to a structured approach aimed at aligning plans with policies, Goal Deployment to a cascade process aimed at making planning consistent between all the levels of the organisation, from top to bottom, and closely linked to the execution processes. Today the expression "Managing By Policies" (MBP) is used to identify a comprehensive system for policy setting and deployment that combines the targets and the means to meet those targets. Ideally, MBP should lead to planning the key execution processes in a way that guarantees that their outputs and ranges of variation are aligned with the top level goals and associated tolerance ranges (customer and stakeholder related goals). That means that process metrics that measure progress in the Do phase should be defined in P phase. Another powerful approach to the problem of aligning strategies and actions is given by The Balanced Scorecard.

The second problem with the PD management cycle is lack of systematic analysis of the results of the year. If causes of failure in planning and execution are not fully understood, improvement will hardly take place.

The PDCA management cycle
The annual management cycle of the company should end up with a thorough analysis of the results compared with the planned objectives and a diagnose to understand the reasons for the possible performance gaps. Doing that makes corrections and improvements possible, both in planning and execution; but, above all, it opens the way to a continuous organisational learning process. In fact, the most effective collective-learning process stems from recognising failures, understanding their causes and sharing the relevant conclusions.

The sequence "Planning -> Execution -> Analysis of results -> Actions deriving from such analysis" is common to any heuristic process, in all areas of science. It should be applied both at micro level - daily activities - and at macro level - the annual company cycle. It takes the name of PDCA cycle - from the sequence "Plan-Do-Check-Act", where Check is the analysis of results phase and Act is the following phase, where short term actions deriving from the Check phase are taken (long term actions will be deferred to the next Plan phase). The Japanese use the name "management wheel" for the PDCA management cycle at macro (company) level.

The Check phase is key to organisational improvement. Organisational self-assessment should be the core activity of the Check phase. To be really effective such self-assessment should have a strong diagnostic character. As such, it must start from the "symptoms", i. e. the performance gaps, with respects to both the planned objectives and the competitors' (or best in class') performance. The diagnostic journey moves from such gaps to the relevant processes - those processes that are supposed to generate them. When the root causes of the problem seem to extend beyond the processes, to the so-called systemic factors (like leadership, human resource management, planning etc.) diagnosis should be extended to such factors. Diagnostic self-assessment's usefulness is by no means limited to improve past performance. It can take into consideration goal gaps too: in that case it will look for process and system capability in relation to the new goals - and plan improvement consequently. My book "Organisational self-assessment" deals exactly with the theme of diagnostic self-assessment in the context of a PDCA cycle.

The PDCA cycle represents the heuristic process at organisational level that is needed to give improvement a strategic dimension. But organisational improvement needs an appropriate model of the organisation. The EFQM and Malcolm Baldrige models have been conceived to that purpose, but the way they are structured and used for estimating the organisation's level of quality (typically for recognition) does not adequately fit diagnostic self-assessment's requirements. They are, however, good starting points for deriving models that better fit diagnostic self-assessment's specific needs. As far as the self-assessment process is concerned, reversing the direction with respect to the awards' approach (right-left, from symptoms to causes, instead of left-right, from enablers to results) is mandatory if full potential of the model is pursued.

Improving the Company Business Cycle: From PD to PDCA

The post Second World War saw major changes in the industrial scenario world over. The Japanese, once a small player in the manufacturing sector became the world leaders in manufacturing. There was an incredible growth in their exports. Japanese goods, once considered worthless were most sought after.

W. Edward Deming's teachings were the seeds for this industrial revolution in Japan. During his visit to Japan in the early 1950's, Deming stressed on a culture where continuous improvement is firmly rooted in all activities of the organisation. According to him the success of an organisation lies in how well it evaluates its present products, processes and markets in the light of customer needs.

Deming emphasised the need for a customer focus to the Japanese. Previously, the Japanese had a three-element view of their business i.e. design a new product (Plan), manufacture and sell it (Do). Deming introduced to them the elements of "check" and "Act"(which was new to the Japanese then) as a means of getting feedback from the customer (e.g. market survey), and acting on the feedback by making necessary changes. He said that it was only through "check stage" that the Japanese could understand the customer better. They could thus make the right product with the right quality attributes for the right price.

Deming drew these four elements of a business in the form of a circle. This was to convey that product development and continuous improvement through customer feedback should be a never-ending process.

He advocated that a customer is the most important component in an organisation. The company actually exists by meeting the needs and wants of the customer. Hence, he should be at the centre of all of its decisions and actions. The company should acquire regular feedback from its customers and make improvements accordingly. The result was a complete turn around of the Japanese industry. Since then the PDCA cycle has become very popular around the world.

PDCA Cycle
PDCA is a simple, easy-to-use and highly effective technique for continuous improvement. It can be used to manage and improve almost anything. The PDCA cycle can be used for identifying and incorporating customer requirements in a new product. It can also be used for making continuous improvement in an existing process or product. The PDCA cycle is a cyclic process because it can be repeatedly applied to the same product or process for continuous improvement.

The PDCA cycle is also known as the Deming's Cycle or the Deming's wheel of continuous improvement. This concept gained prominence in most organisations worldwide after the Japanese applied it successfully to improve their products and processes.

The four stages in the PDCA cycle:

PLAN:

This stage consists of improving a process by identifying the problems/opportunities in a product or process and coming out with solutions.

DO:

In this stage, the solutions identified in the Plan stage are implemented on a small scale. This ensures that there is no interruption to the routine process while the planned solutions are being implemented. It also minimises the costs of any failures.

CHECK:

This stage consists of checking if the changes implemented on a small scale are working as expected. Any new problem identified during this stage has to be promptly addressed.

If in the check stage the experiment is not successful, the Act stage must be skipped, and the Team must get back to the Plan stage and collect fresh ideas to solve the problem.

ACT:

Act stage consists of expanding the scope of implementation from the small scale to the actual process. This is done only when the trial changes applied in the DO stage prove successful.

PDCA has varied applications. It is used for:

1. Daily routine activities, for an individual or a team.
   
2. Problem solving.
   
3. Project management.
   
4. Continuous improvement.
   
5. Vendor development.
   
6. Human resource development.
   
7. Development of new products

Conclusion:

The PDCA is a simple technique that every one can apply to make improvements in any sphere of work. In fact, everybody uses the PDCA concept knowingly or unknowingly, in his own way. The difference though is in the thoroughness and consistency with which it is applied.

Deming's Cycle In a Plastics Container Plant

A plastics blow-moulded container plant solves problems and improves processes thanks to the Deming's PDCA cycle. …

Organisation:

A study was done for a period of two years on a plastic facility in United States. The company was into production of blow-moulded containers. The company followed a batch system of production and had a 5% market share at the time of the study.

Implementation of Deming's cycle:

To ensure successful implementation of Deming's cycle, the company formed a Supervisory Group and a number of smaller Teams from among its employees. The duties of the Teams and the Group could be summarised thus:

Supervisory Group: Members who have an adequate knowledge of various functions in the facility constitute this Group. They were responsible for the Plan phase. Hence identifying problems, collecting relevant data and working out appropriate solutions, form the duties of Group. They also reviewed the results from the Do, Check and Act phases.

Teams: Their duties include assessing the ideas generated by Group and executing them through the Do, Check and Act phases of the PDCA cycle.

Successful implementation requires application of PDCA cycle even in micro-level functions. This requires active participation of workers. Hence, workers involvement was encouraged at every phase of the PDCA cycle.

Workers under the guidance of the Teams operated the prototype line developed to test the new solutions suggested in plan phase. They were encouraged to communicate and suggest new ideas to the Teams or Group. They were also allowed to test, review and rework ideas through their own PDCA cycle before suggesting it to the supervisory group. By involving them in problem solving the workers became active participants in the company's drive for continuous improvement.

The supervisory group sought the problem areas within the plant that needed improvement. After careful consideration the group decided to address the material handling system because of its greater influence on the plant production.

Material handling system:

Plan:

The supervisory group inspected the reports of a particular production line over the previous one month. They observed that the production line had been down more than 20 times in the previous month due to raw material shortage. On an average the line would be down for almost half an hour every time it stopped. The down time for the entire month was therefore really significant.

Closer analysis revealed that the down time occurred whenever the production line exhausted its raw material supply. Every line was short of raw material at least 20-30 times in that month. They observed that the operator was manually feeding the raw material. Thus the line would go down each time the operator was unavailable or attending to some other task during the replenishment. The Group also realised that the same problem was being faced by all the other production lines in the plant.

There were two apparent solutions to this problem:

• Increase the number of operators.
  
• Automate the entire production line.

As the management was reluctant to increase the number of operators, the Group was left with the second option.

To check the effectiveness of automation the PDCA Group visited other companies with a similar production system. The Group observed one particular company did not face any delayed replenishment problems as the production line was completely automated. Though the automation would cost $100,000, the Group decided in favour of trying out this option. This was because if effective the solution would have a ROI in less than 2 years.

Do:

However, before making the investment, the plant wanted to test the solution in its own plant environment. Hence, a cheaper prototype system capable of managing raw material supply was developed. The prototype consisted of two small production lines at 10lbs-compressed pressure each The lines were expected to replenish raw material without the assistance of the operators.

Check:

The two lines were observed for one month. Since the lines functioned smoothly without any hindrance, they decided to install the system on the actual production line.

Act:

Installation of the new system took over two months. As the 10lbs air pumping mechanism seemed to be sufficient to operate the production line, the Group maintained the same air pressure in the new system.

Check:

To certify the new system the Group monitored its performance. They however observed that the line was not functioning as efficiently as expected. Further study revealed that the 10lbs air pressure pumping mechanism was not sufficient for the new line and hence was causing the stoppage.

Act:

The 10lbs-air pumping unit was replaced with a higher 18 lbs air unit.

Check:

After replacing the air-pumping unit, the Group did not observe any reports of machinery falling short of raw material.

In fact, the lines were functioning so smoothly that they had to be shut down so that the maintenance personnel could conduct the normal maintenance work. Previously, the maintenance personnel utilised the machinery down time due to raw material shortage for regular maintenance work. However, the number of times the line had to be stopped to perform maintenance work on it was much less than the down time it experienced due to material shortage.

Result: The material handling solution was successful.

Initially, the plant personnel did find it difficult to apply the PDCA cycle of improvement, as it was new to them. The other issue they faced during the initial stage was deciding on which projects to implement the PDCA cycle. However later, they arrived at Material Handling based on what the majority felt would benefit the company the most.

In a span of six months after initiating the PDCA cycle of improvement, product returns from customers dropped to 0.01% and line scrap reduced by 2%. The PDCA cycle has since then gained greater adoption in the plant.

Deming's lecture to Japanese top management
This document is an English translation of the Japanese transcript of Dr. Deming's lecture given to the Japanese top management.
http://deming.eng.clemson.edu/pub/den/deming_1950.htm

PDCA: The model for improvement
This PDF presentation outlines the PDCA cycle as a method to adapt, implement and establish change.
http://www.vhqc.org/Hospitals/session1/PPmodel3PDF.pdf

TQM - problem solving strategies
This presentation discusses the principles of Deming, and other quality gurus. It briefs about the PDCA cycle.
http://infocom.cqu.edu.au/Courses/2002/T2/STAT12049/Resources/Lecture_Slides/Lecture_3.ppt

W. Edwards Deming Institute
The W. Edwards Deming Institute® is a non-profit organisation that was founded in 1993 by noted consultant Dr. W. Edwards Deming. The aim of the Institute is to foster understanding of The Deming System of Profound Knowledge™ to advance commerce, prosperity and peace
http://www.deming.org/

The Deming Forum
The Deming Forum, is an educational organisation, endorses the studying and application of the management philosophy developed by Dr. W.E. Deming. It organises an annual conference, The Transformation Forum at which speakers from all over the world give insights into Dr Deming's accepted wisdom and explain how Deming's approach has helped them transform their own organisations.

This UK based educational organisation aims to provide and enable learning opportunities for those who wish to learn and hone their understanding of the Deming philosophy.
http://www.deming.org.uk/

Out of the Crisis
by W. Edwards Deming
Book Description
According to W. Edwards Deming, American companies require nothing less than a transformation of management style and of governmental relations with industry. In Out of the Crisis, originally published in 1986, Deming offers a theory of management based on his famous 14 Points for Management. Management's failure to plan for the future, he claims, brings about loss of market, which brings about loss of jobs. Management must be judged not only by the quarterly dividend, but by innovative plans to stay in business, protect investment, ensure future dividends, and provide more jobs through improved product and service. In simple, direct language, he explains the principles of management transformation and how to apply them.

Deming Management Method
by Mary Walton, W. Edwards Deming
Book Description
Whether you are the owner of a small business, a middle manager in a mid-sized company, or the CEO of a multinational, this book can show you how to improve your profits and productivity. Change, Dr. Deming believes, should start at the top with an informed, quality-conscious management. His 14 points for managers offer practical applications for everyday business life.

The Deming Route to Quality and Productivity
by William W. Scherkenbach
Book Description
According to the author of this book, Dr W. Edwards Deming was one of the most influential theorists behind the success of Japanese business after World War II. The author, who was Deming's pupil at the New York University Graduate School of Business, and who later was his assistant there, sets out the 14 basic principles of Deming's approach to management. The principles are especially concerned with productivity, quality control, and competitive marketing.

Continuous Improvement.

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