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Tom Pyzdek

Six Sigma

We’re Teaching Future Leaders How to Fail

The content of business education is irrelevant and the faculty in business schools inexperienced and unqualified.

Published: Thursday, January 28, 2010 - 06:00

While we work to improve quality and efficiency, our leaders manage our organizations into oblivion. Literally. Something is terribly wrong. Leaders of major corporations in virtually all industries do things that cause them to, either accidentally or deliberately, destroy billions of dollars in value in a breathtakingly short time. What could be behind this phenomenon? I’d like to explore a few possibilities.

Business education

This subject has been the topic of many an article lately, and even a few scholarly papers. Most of these place the blame on one or more of the following: inexperienced professors focused on academic pursuits, failure to teach ethics and social responsibility, or lack of practical experience opportunities for students. Professor Henry Mintzberg warns that business school academics pursue the arcane just to achieve academic publication. For state-funded institutions, being published means points, and points bring prizes in the form of additional government funds.

“We need more innovative ways of teaching,” according to Cary Cooper, a professor at Lancaster University’s Management School, in the interview “What's Wrong with Management Education?” published in the April 2009 issue of Engineering & Technology magazine.

“MBA courses, case studies, and knowledge transfer are not the whole answer to what management education should be about,” explains Cooper. “We need more strategic management experience related to front-line management. Managing change in technology, ethics, leadership, and management skills is what dictates the success or failure of companies today. I don’t think management education is enough about the skills of management—the skills of managing other human beings.”

In the same article, Peter Hahn, a banker turned academic, points out that too much of business academia maintains a two-tiered universe, with those doing most of the central business teaching lacking business experience, and those leading and administering often lacking academic experience. Those with business backgrounds could add so much more.

“Business schools need to entice more experienced men and women to gain superior academic credentials,” Hahn says. “The economics of teaching will assure that this is never going to be a large group, but it should be a vital one to keep business schools viable and relevant.”

Progressive education and pragmatism

Not only is the content of business education irrelevant and the faculty in business schools inexperienced and unqualified, the method of teaching and the underlying philosophy are also flawed. The most popular approach to teaching business students is the case method. In essence, the case method replaces textbooks and lectures with disguised historical data about a (usually disguised) company and discussions among students and professor about how to respond to the data. Truths and right answers are not only not taught, proponents of the case method do not believe that universal truths exist and faculty often disagree among themselves on the answer. Teaching students business principles is thought to be “dictatorial.” Instead, learning is considered a social venture (not an individual accomplishment) and the emphasis is on acting rather than knowing. With few exceptions, students who are taught using this approach are not able to think for themselves.

“The case method of instruction does not enable students to think for themselves; rather, it teaches students to become arrogant, emotion-driven, critics who do not have any knowledge to think about even if they could think," according to Jerry Kirkpatrick, professor of international business and marketing, California State Polytechnic University. 

Can you think of any managers in your company who might fit this description?

Governance

Warren Buffett lists the following guidelines for good corporate governance:

Minimal Board Compensation: The board is the lowest paid of all Berkshire employees.

No Stock Options: Buffett believes stock options should not be part of executive compensation and resigned from Coca-Cola’s board when the beverage giant insisted on paying stock options. Berkshire directors get no stock options and instead must buy stock on the open market, or “pay to play.”

No Indemnity: Although Berkshire is an insurance company, it doesn’t provide professional indemnity insurance for directors and officers, unlike 93 percent of U.S. companies. This forces management to better identify, assess and manage risks.

No Retirement: Directors and officers are asked to serve for a lifetime, with no term limits, enabling the company to seamlessly tap accumulated experience and knowledge, especially of the owners-turned-managers running the family businesses acquired by Berkshire. There are no management contracts, and managers are free to leave at any time.

Transparency: Buffett explains his principles on values and investing in the Berkshire Hathaway Owner’s Manual. These include treating shareholders like partners, not taking on debt, preferring to buy family-owned businesses, and being free to talk about anything except the stocks that Berkshire is buying or selling, which would create investing competition.

 

Assuring good governance, Buffett points out, is the responsibility of all stakeholders, not regulators.

Incentives

President Barack Obama believes that the cause of the financial meltdown was greedy bankers. Indeed, we are all conditioned from childhood on to believe that selfishness is bad and that it is immoral to be “greedy.” But all living things pursue their own self interest, plants and animals alike. All of us are greedy in the sense that we would like to improve our lot or that of our loved ones. Are bankers (or big businessmen, or stockbrokers, etc.) as a group more prone to this than the rest of us? I seriously doubt it. Instead I believe that the incentive structures allow and encourage business leaders to act in ways that jeopardize the interests of investors and employees while enriching themselves. For example, the 2002 Berkshire Hathaway annual report includes this insight in the discussion of derivatives:
“The parties to derivatives also have enormous incentives to cheat in accounting for them. Those who trade derivatives are usually paid (in whole or part) on ‘earnings’ calculated by mark-to-market accounting. But often there is no real market… and ‘mark to model’ is utilized. This substitution can bring on large-scale mischief.”
Greed, aka self-interest, is a constant. It didn’t just appear in the fall of 2008. Blame the system that caused leaders in entire sectors of the economy to act in ways that harmed their major stakeholders, and the economy. Structure incentives such that the interests of all groups are in harmony. Make sure that business leaders’ fortunes rise and fall in the same way as those of their constituencies.

Solutions

Assuming that the problems of incentives and governance are addressed as recommended, the lean Six Sigma approach can then be used to remedy the problems with management education. Lean Six Sigma is more than a set of technical tools that can be used to solve specific problems. Throughout the decades since World War II, it has evolved into a complete system for managing an enterprise. Rather than a haphazard approach to leadership based on a social consensus, we begin with fundamental principles of leadership and deploy these principles using a rigorous approach. The approach can be summarized as follows:

1. It all begins with the vision of the founder. This foundation establishes the purpose of the enterprise and it doesn’t change. Deming called it “constancy of purpose.”

2. Next, leaders identify stakeholders, learn their voice, and translate these voices into broad strategies for achieving long-term success.

3. The strategies are operationalized with specific balanced scorecard metrics which are sorted into those metrics representing requirements that must be competitive and those requirements that must be world-class.

4. Selected metrics (we have a process for making this selection) are displayed on leadership dashboards. This provides leadership with a focus and a way to measure progress.

5. The dashboard is used to identify improvement projects and plans. Some of the projects will be “just do” projects, others will be lean Six Sigma projects.

6. The feedback provided by the dashboards will be used to determine if the plans and projects are successful in terms of implementing the strategies. Strategic plans will be modified accordingly. Thus, strategic planning becomes an ongoing activity rather than an annual exercise in futility.

 

Unlike the approach taught in business schools, our approach is based on a vision of a new and better world resulting from the enterprise’s existence. We look to harmonize the interests of all stakeholders, rather than pitting one group (shareholders) against all others. We believe that there is an objective reality and that we can know it, albeit imperfectly, through models, facts, and data. We believe that facts and data can help us make better decisions, and we have tools that help us glean information and knowledge from the data. Finally, we understand that our strategies and plans are a model of reality and that our actions have an impact on this reality, i.e., our plans are a transfer function that connects the root causes we address with the outcomes we desire. We believe that although all models are wrong, some models are useful. We use objective feedback to help us determine how to make our models more useful.

Discuss

About The Author

Tom Pyzdek’s picture

Tom Pyzdek

Thomas Pyzdek’s career in business process improvement spans more than 50 years. He is the author more than 50 copyrighted works including The Six Sigma Handbook (McGraw-Hill, 2003). Through the Pyzdek Institute, he provides online certification and training in Six Sigma and Lean.

Comments

root cause

thoughtful article and discussions.
The root cause of poor business judgement and ethics is not to be blamed on "government" nor "education" nor "big business" for our woes...we can only blame ourselves as PARENTS/ COLLEAGES for failing to teach those MBA students, our colleages and our bosses to acknowledge a set of cultural moral foundations that do have absolutes and are not completely elastic or permeable, to work smart and not only "hard", and that there are boundaries on what is a just reward.
Reaping a good salary/bonus that leads only to conspicuous (I've more toys than you...and mine is bigger than yours?) consumption afflict a certain % of our corporate leaders and directors, certainly not all. Well within the normal distribution curve, I think. Over-the-top leader - be they in government, corporate, education or otherwise - can be called immediately to the social carpet, if we create an environment for it.

In terms of outsourcing - yes, the motive was initially profit-driven. A second motive is to nation-build. Providing industry to agrarian-driven, depressed or collapsed subsidied economies have bettered Eastern Europe (Poland, Romania, Czech Republic), Ireland, Korea, Hong Kong, Taiwan, India, yes, even China! Sure, those societies may have "problems" that certain interest groups trumpet as abominable - but America went through similar historical phases during our development and rise.

The basic counterpoints?
a. application of research (academic, government, industry) into useful mass market products, rather than "follow-on" products. East Asia has great case studies for this
b. creation/invention of new generation products that allow us to function in different ways - the short term can be "green applications", the next logical step in the industrial revolution?
c. education/training of a balanced population in craftsmanship, not only knowledge management - the doing, not only the thinking. This starts from childhood through a combination of unstructured as well as structured activities, the meaningful hands-on exposure to crafts, and assumption of individual responsibility for actions.

Yes, it would be great if retired middle managers were provided with forums to mentor today's youth - this is a good jobs generator through our existing education systems, Head start, Jobs Corps, AmeriCorps VISTA, and other groups (religiously based or not). We need to be a service before our children reach college - the most formative years are in the middle and high school ages.
We don't need huge salaries for this teaching / tutoring / mentoring, but some renumeration to cover incurred expenses would be helpful. The mentality of "it takes a village..." needs to re-permeate America. What happened to all the youthful passions of the Baby Boomers!?!

Excellent Article

So what can we do to help? There are many things.

I am a retired executive from EMC with a BS and MS in Engineering as well as a certified black belt. During my 18+ years at EMC I held executive general management roles including the VP of Quality and Six Sigma (where I recommended and implemented Six Sigma). I was also the executive sponsor of the UMASS/EMC relationship which allowed me to deepen my understanding of the academia / industry relationship. (I received my BS at the University of Massachusetts, Amherst, MA). I agree with the author - what we are teaching sometimes doesn't match what we are looking for in industry. The great news was that the Dean of the Engineering School and the Dean of the Business School strongly supported my guest lecturing activities to help bridge the gap. (It was great presenting some Quality tools to an MBA class when applying those tools to understanding problems in the P&L). But even more rewarding was talking about short and long term goals and business ethics. Now that I am retired I am spending even more time to continue this mission.

So what can we do to help? Get involved with your local college, volunteer to influence the curriculum, spend time to share your industry views to undergraduate and graduate students. It's up to us to work with the schools to help shape the next generation.

Jim
pearson_jameso@hotmail.com

Great article as usual ...

Tom:

Great article as usual. I went to a talk on this subject a year ago and the speaker said that business schools teach openly how manipulating stock value position through layoffs, and borrowing and buying into new markets is legal and works much more quickly than the methods you prescribe. He said it's all about having free cash. Therefore, business seems to either follow a different set of ethics, or we just aren't communicating well enough to top management how we can free up the cash they need through Lean Six Sigma.

Your article also stimulated another thought that seems to be a fundamental gap in the standard approach. Every system in the company should also align with their identified mix of market penetrating mechanisms (i.e. innovation like Apple, variety of solution like Home Depot, and process excellence like McDonalds). Quality management systems need to be more flexible when innovation is more important, etc.

I hope to see you at a conference again soon.

KN - www.KimNiles.com

Thank you Tom, and

Thank you Tom, and Amen.
Keep up the good work.

Donald J. Wheeler

Future Leaders

Interesting article. Bottom line is they don't know what the don't know and they don't want to know it (on both sides of the equation). If Deming and Juran and the rest couldn't get through to them - what chance do the rest of us have.

Roy Kinkaid
rkinka@hotmail.com

Deming Knew Better

I find your statement "President Barack Obama believes that the cause of the financial meltdown was greedy bankers. Indeed, we are all conditioned from childhood on to believe that selfishness is bad and that it is immoral to be “greedy.” But all living things pursue their own self interest, plants and animals alike. All of us are greedy in the sense that we would like to improve our lot or that of our loved ones." offensive. One of the most 'animal-natural' acts is rape, and we 'humans' find that very 'un-human'...and very justly so. We are better than that. We are to be selfish only to a point. The financial groups had very little to keep them in check. Big business is no more to be trusted than too big government. To say that all folks will behave responsibly without any regulation is absurd.
With that said, Deming was right to point out that MBA schools were turning out folks looking only at reducing costs. This focus only on cost has led to short term thinkers compromising human capital and factors of production capital. They end up selling infrastructure assets for short term gain and Wall Street profits. Let's get back to stuard leadership before it is too late.

Greed

I actually agree with the "all people are greedy" sentiment, but I think that the authors point was more that the systems that some institutions have in place make it far easier for greed to impact the decisions that business leaders are making. If you're an Operations Manager and you get a yearly bonus based on the head count and wages paid at your facility it's far more likely that you'll be tempted to drive those numbers down, even when it could be potentially detrimental to the good of the business. People perform to the metrics by which they're judged or awarded. If a production supervisor gets a good raise and he's told that it came because his department had high production levels then he learns to work the system to make high production numbers, sometimes to the detriment of other metrics that are just as important to the business.
Shane Scroggins

I agree Shane

I agree with you Shane that the reward structures are causing greed within the system. The focus of my point is that we are quick to point to 'big government' and 'government intrusions' (and education in this case) causing a loss to the system; however, we are slow to hold large companies to the same level of review. When large companies out-source based upon price alone, without ensuring the same stringent approach to quality is maintained by these 'low-bidders' (enabled by saving money by not auditing or auditing for conformance rather than non-conformance) they create a climate of degraded quality. Large companies, when greed is not kept in check through prudent regulation, will cause quality professionals to loose jobs (except for those that consult for those large companies). I don't think that we need the current leaders of top businesses in our schools. They've caused enough damage already. We need to let the educational system focus on the Deming fundamentals (considered theory by some I guess) that all workers have a birthright to pride in workmanship, and as stuard leaders, we need to provide those jobs...not outsource them for the sake of our greed. If the author is specifically targeting MBA schools that only focus on driving out costs without careful consideration that we are not cutting customer value, then we are in agreement.
timothy@aerospacequalitysolutions.com