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Paul Naysmith

Quality Insider

Quality Beyond Manufacturing

Applying Deming’s approach in a service company

Published: Thursday, April 24, 2014 - 17:40

It was yesterday, a glorious sunny distraction of a day, and while alternately admiring the world outside my window and reading the latest issue of CQI’s Quality World, I came across a plea for help. In the letters section, a reader implored the editor to “help the large number of service industries in the UK to understand how Deming’s work can apply to them.”

The young lady who had written was a bit frustrated about how an article in a previous issue focused on the application of W. Edwards Deming’s philosophies in the manufacturing sector. I can appreciate this young lady’s frustration as there are a great many works about Deming in an industrial manufacturing sense, but far fewer about service. Since I work in a successful service company, perhaps I can assist in providing some relief in the way of an explanation.

Let’s go back to the source. Deming himself was not an industrialist or a manufacturer. He was a management consultant who lived a long life, the majority of which he spent traveling and providing a much-needed new set of philosophies to business leaders. Deming wrote more than 170 articles and two bestselling books that today are a staple for business management students. He really did come to notoriety in a “service,” working for the U.S. Census Bureau, where he applied his statistical techniques. At the time he also was learning from his physicist mentor and friend, Dr. Walter Shewhart (we’ll come back to him a little later).

Shortly after the end of World War II, Deming was invited to speak to engineers and business leaders in Japan on behalf of the United States, since the U.S. government supported the reconstruction and recovery of Japan’s economy. To rapidly rebuild the country back to self-sufficient strength, factories ran endlessly as Japanese industrialists embraced Deming’s ideas. Consequently, many think that Deming’s approach is only for a business that makes physical things.

I can understand why there are so many articles and books about Deming in an industrial manufacturing sense. Results are tangible and can be achieved in a short period, so they are therefore easy to research and write about. If you do dig a little deeper, though, you will find some written works specifically about Deming and service applications. One is Total Quality Service: Principles, Practices, and Implementation (Just the Facts) (CRC Press, 1995).

My goal here is to help a fellow Quality Punk relate a little more to Deming in a service application. I see the key to Deming’s principles as a mix of people management with a soupçon of statistical appreciation. I see “service” (in a business sense) as a provision of assistance to a customer, or a series of activities that provide a level of satisfaction to a paying client.

Now that I’ve gotten my appalling oversimplifications out of the way, let’s see how we can apply Deming’s top-notch ideas in a service business. Because Deming has a large body of work, I’m going to talk about the most famous of his ideas, mainly to keep this article length manageable.

The continuous improvement cycle

Back to the other character in our story: Dr. Walter Shewhart. Many incorrectly reference the principles (poorly re-created in the figure 1 below) to Deming, but it was Deming who adopted this simple idea from Shewhart and promoted it. You may know this as the PDCA, or plan-do-check-act cycle; or the PDSA cycle, where the “S” is for study. Sometimes it’s called the Deming Cycle. Regardless of what it’s called, it's good. Following in Deming’s footsteps, I’ll refer to this as the Shewhart Cycle. This is the founding principle of continuous improvement or any good quality management practice, regardless of business type.


Figure 1: The Shewhart Cycle

Applying this in a service scenario is easy for me. I do it every day, always looking for a way to improve my business. I find that the Shewhart Cycle is a brilliant tool for influencing senior leadership. For example, we had challenges assisting multiple clients and their varying needs at the same time. So starting at point No. 1, we started to collect data. Our observations over many years pinpointed a predictable period of peak activity in any given year, as well as the challenges experienced.

So as a management team, we improved on the training and provided information to a small number of select service-provider team members to test if this training and information worked. We didn’t need to wait too long to see the results, and we were fortunate that the customers gave immediate feedback with great satisfaction. From this, we applied it on a greater scale, and monitored the results to see if the changes made were stable and therefore predictable. Within half a year, we monitored a significant drop (by a factor of seven) in the original set of observed challenges compared to the previous 12 months. When we showed improvement, though not eradication of the issues, we initiated the process again to improve further.

Deadly diseases

Deming believed in a “system of profound knowledge,” and this is the basis for the continuous improvement described above. However, if you have ever attempted change and improvements, you may have to overcome barriers and blockers. In Out of the Crisis (MIT Press, 1982; reprinted 2000), Deming called them “The deadly diseases” that were “afflicting most companies in the Western World,” which I presume the Western world of the early 1980s. Before I critique them or show their application in a service environment, I will list them straight from Out of the Crisis, chapter three:

1. Lack of constancy of purpose to plan (a) service that will have a market and keep the company in business and provide jobs.
2. Emphasis on short term profits: short term thinking.
3. Evaluation of performance, merit rating, or annual review.
4. Mobility of management: job hopping.
5. Management by use of visible figures, with little or no consideration of figures that are unknown or unknowable.
6. Excessive medical costs
7. Excessive costs of liability, swelled by lawyers that work on contingency fees.

Figure 2: Deming’s deadly diseases (adapted)

 

I like a list; that’s just a character trait I have. They are good for going through ideas in a sequence:  

1. How does lack of constancy of purpose apply in a service?  The core to this are the following questions: What does management care about this month? What is our priority? Where are we going? Without answers to these questions, how can we know what to do to provide assistance to clients? My personal appreciation of this first disease was when my CEO provided very clear single direction to the whole company, and then demonstrated it through action. As a result of this disease being cured, there has been increased activity with current and new clients, and improved financial results, providing security to the many employees.

2. I like this one, the emphasis on short-term profits, because it is very easy to provide examples of service sector short-term thinking. If you have been locked in a cabinet for the past five years, you may not be aware of the recent banking issues across the globe. The drive to sell products (e.g., subprime mortgages) to people who could barely pay them back, did make a fast buck for the bankers but ultimately resulted in a global recession. Looking at longer-term profits will ensure business success. For example, Amazon doesn’t make a huge amount of profit on their Kindles, but it understands that Kindles give customers the opportunity to buy e-books over and over. Amazon thus makes a profit in the longer term.

3. Evaluation of performance can remove the humanistic element of leadership. The assumption about performance appraisals is that they focus on the faults of employee or the corrections they must make. How this should be expressed in today’s terms is that we should focus on the system that creates employee behavior rather than blaming the employee. Peter Scholtes’ work in this field is certainly worth consideration if you wish to learn more (The Leadership Handbook, McGraw Hill, 1997). For example, as simple as this may sound, if a supermarket employee is unhappy and does a poor job, it is because management is poor. You may want to consider Wal-Mart's current performance as a reference.

4. Mobility of management. I presume back in the early 1980s, many leaders would be job-hopping, which creates instability for businesses. I can’t see this being any different now. Granted, headhunters today would argue with me that new people will bring new ideas and energy, playing the part of a savior. (White Knight Syndrome, New Harbinger Publications, 2009). However, if we can’t have employees who are with an employer for some length of time, instability will occur and business understanding will erode. In a service environment, I see this especially at my favorite restaurant. I loved the food and service there, but one day, although the food was consistent, the service was abysmal. using my Improvement Ninja stealth, I learned that the previous manager had resigned to go to another, higher-paying job, and the new manager was a trainee. As a customer, experienced with that restaurant’s good service and food, I have an expectation for both each time I go. Productivity guru Richard Branson once put it like this: “Train your employees well enough, and they can leave. Treat them well enough, and they don’t want to.” Again, this comes down to good management. If there is an ambitious employee who wants to progress, help him progress within your company.

5. Running the business on visible figures is important; we do need to pay our employees, our vendors, and our taxes. In this point Deming is attempting to express there is a difference between the visible and the invisible. In fact he does explain perfectly that the invisible numbers are actually more important. He used an example that visible numbers in business are like a thermometer on a wall. (Four Days with Dr. Deming, Addison-Wesley, 1995) A thermometer only tells us the temperature. It changes nothing if the weather is too hot or too cold. This leads into the idea of cost of poor quality or non-quality, and how you measure customer retention in terms of financial figures in your service business. For example, the car insurance industry spends massive amounts on advertising for new customers. I see their business model as trying to get new customers to the detriment of their existing customers. I wonder how much they lose from their bottom lines to advertise and send out welcome packets. I see these as invisible costs.

6. I’m going to struggle with excessive medical costs. When Deming wrote Out of the Crisis, just as now, the cost of medical insurance in the United States was massive. In other parts of the world, such as the United Kingdom, where there is universal healthcare not borne by the private sector, this isn’t a factor. If Deming had written this today, he might have worded it as the excessive costs of non-safety. In a service environment, we typically work with people, and if someone is injured as a result of the service, this would create a safety cost that could be financial in the form a legal action or loss of business due to poor reputation.

7. “Excessive legal costs” during Deming’s time probably referred to ending a business relationship. What Deming was getting at was, at that point in time, businesses had punishment clauses in their contracts with their suppliers. He suggested the focus should be on the supplier working on building pride in its service or product, not obliging the customer to somehow assist in improving the supplier’s service or product. These days, with the ease of retaining a “no-win/no-fee” lawyer, service-sector businesses might be prime targets for being sued, since they generally work with people directly.

Summary

Deming’s ideas are not confined to good manufacturing principles, but perhaps there aren’t enough real-world examples of exceptional service offered as a result of using his teachings. The principles Deming set out are really the foundations of excellent business practices, regardless of what a business does. They can be applied to the service sector and will provide you with good results, but only if upper management believes in it, and the principles are applied by the key influencers in your business. I see a future where manufacturing and service companies will be built on the foundation of Deming’s teachings, so a customer’s only experience is one of quality.

Discuss

About The Author

Paul Naysmith’s picture

Paul Naysmith

Paul Naysmith is the author of Business Management Tips From an Improvement Ninja and Business Management Tips From a Quality Punk. He’s also a Fellow and Chartered Quality Professional with the UK’s Chartered Quality Institute (CQI), and an honorary member of the South African Quality Institute (SAQI). Connect with him at www.paulnaysmith.com, or follow him on twitter @PNaysmith.

Those who have read Paul’s columns might be wondering why they haven’t heard from him in a while. After his stint working in the United States, he moved back to his homeland of Scotland, where he quickly found a new career in the medical-device industry; became a dad to his first child, Florence; and decided to restore a classic car back to its roadworthy glory. With the help of his current employer, he’s also started the first-of-its-kind quality apprenticeship scheme, which he hopes will become a pipeline for future improvement ninjas and quality punks.