Deming, Profound Knowledge, and Global Sustainability

There is a need for change in how we look at business, industrialization, and the planet

Published: Friday, September 20, 2013 - 13:49

Editor’s note: Andrew McKeon will be a guest of Quality Digest Live on Friday, September 27, 2013, at 11 a.m. Pacific/2 p.m. Eastern.
McKeon will be speaking at The Deming Institute’s Annual Fall Conference, Oct. 18–20, 2013, in West Lafayette, Indiana.

Businesses today are moving from a world of tactical problems (e.g., meeting the demands for speed, analysis, specialization, and eliminating uncertainty) to a world of strategic problems (developing patience, insight, engagement across disciplines, and accepting uncertainty). Solving these strategic problems will require a different decision process, skill set, and management paradigm than called for by tactical responses to problems.

The biggest strategic problem of the 21st century, perhaps the most important in history, is building a global economy that serves 10 billion people by mid-century. At the core of the problem is the misalignment between how the world’s industrial economy works and how the biosphere works. In particular and most urgently, carbon dioxide (CO₂₎ emissions from the global economy are exceeding the carrying capacity of the planet’s biosphere to absorb them. This fundamental misalignment is a huge systems problem, and climate change is its most serious and urgent consequence.

One of the great management theorists and practitioners of the 20th century who used systems thinking as an important principle in management was W. Edwards Deming. After a seven-decade career and long after he became closely associated with the quality movement, Deming crystallized his thinking into a framework he called The System of Profound Knowledge. In his book, The New Economics (The MIT Press, Second Edition 1994), originally published in 1993, Deming discussed profound knowledge as a means to rescue U.S. business from the “tyranny of the prevailing management style.” Today in reviewing profound knowledge, it seems to provide the necessary structure for leading management (and humanity) “out of the crisis” of a planet that is heating up while the global economy needs to triple in size in 35 years.

The System of Profound Knowledge

The System of Profound Knowledge has four interrelated and interdependent components:
1. Appreciation for a system
2. Knowledge about variation
3. Theory of knowledge
4. Human psychology

Appreciation for a system. There is a need for businesses to be defined as systems, and as subsystems within larger systems up to and including the Earth’s biosphere. There is the need to find leverage points in the system, places to influence the system to create desired outcomes. Such leverage points might include capping and setting target levels for CO₂, finding feedback loops within the system, finding self-organization, and finding transformational shifts in thinking (e.g., human economy in service of the aim of the biosphere, instead of biosphere in service of the aim of human economy).

Knowledge about variation. Is climate change happening? Data on CO₂ historical levels and current levels; data on temperature histories; and data on ocean acidification, loss of glaciers, arctic ice, and species loss seem to be pointing to the reality of climate change. Knowledge of variation is critical to present the case for whether climate change is moving the biosphere from having a more-or-less stable climate system into a zone of great instability. Other important variations include: variation in management style; variation in people’s attitudes toward their work, toward the environment, toward climate change; and variation in leaders’ (e.g., scientists, business leaders, political leaders, and other thought leaders) attitudes on climate change. 

Theory of knowledge. Where does new knowledge come from? The answer provides an introduction into the “new” knowledge that has been carefully assembled during the last 200 years to make the case for the urgency of addressing climate change and building a “new economics” for a sustainable global economy. Uncovering new knowledge also points to how we will find solutions to the climate crisis, including knowledge from the study of the 4 billion-year-old biosphere revealing clues about how to manage a system sustainably. This must be based on scientific method, which is virtually the same as the Deming plan-do-study-act (PDSA) cycle. This is a multidimensional issue, not just one of costs as accounted in business.

Human psychology. What is it about human psychology that has hindered greater action on climate change, and what is it about human psychology that can be tapped to create much greater action? What can be done to create an environment in which people will actively contribute ideas?

In keeping with Deming’s ideas, the following are critical for management to achieve quality outcomes, and they are even more critical to creating a sustainable economy:

Transformational change. There is a need for organizations to transform to meet the needs of 21st-century business. Deming’s System of Profound Knowledge can be used to bring about organizational transformation.

Disruptive leadership. The transformation cannot happen without disruption and without leadership. Few business leaders in the 20th century represented the level of disruptive leadership to the global economy as did Deming.

Theory and knowledge. All new knowledge comes from theory. The importance of this in solving the strategic problems of the 21st century is critical in knowing what the problems are and what we do to solve them.

Importance of “aim” and “alignment” in system function. Defining the aim and creating alignment around it are essential to bringing about effective system function. The more interdependent the system, the more important aim and alignment are; the biosphere is the most interdependent system of all.

Financial reporting. The role of short-term financial reporting requirements is having a huge effect on our ability to address climate change and sustainability. Can businesses address a problem with such long-term consequences as sustainability when pressured to hit short-term financial targets? Deming showed how businesses with a broader view can be hugely successful financially. Today such companies as Interface Carpet, SC Johnson, and Novelis Aluminum are opening new markets and expanding their business by using sustainability as an organizing principle.

Below is a short list of how Deming’s ideas, as framed through The System of Profound Knowledge, contrast with how business is typically conducted:

There is a need today for a change in how we look at business, industrialization, and the planet. Appreciation for a system, knowledge of variation, theory of knowledge, and human psychology all play important, indeed essential, roles in this change.

About The Author

Andrew McKeon

Andrew McKeon is the director of operations for the Markit Environmental Registry, a UK-based information service provider enabling transparency in capital markets. His background is in engineering at Bell Labs, in finance at Goldman Sachs and Deutsche Bank, in consulting on corporate sustainability strategies, and he is a published author and speaker. McKeon has built a network of business, academic, NGO and government leaders to support sustainability initiatives. He planned, funded,  and executed an international conference series on business strategies for a sustainable global economy. He served five years on the TransitCenter board  dedicated to sustainable transportation.