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Mike Micklewright

Quality Insider

I’m Sorry—the Recession is My Fault, Part 1


Published: Monday, January 12, 2009 - 15:12

Question: Name the modern-day politicians who best exemplify the Seven Deadly Sins of greed, envy, gluttony, sloth, lust, pride, and anger. The last one is a group of people, not a politician.
Answer: Please record your answers, put them in your purse or wallet and save them for Part 2 of this series. If you get at least four correct, let me know and you win.

OK, so it’s well understood by many of us that we shouldn’t blame people for systemic errors and that today, given the state of the economy, we have some real systemic errors. So why would I blame myself—a person—for these problems? I think that I, or we, as a quality community, should begin to take much more ownership in the downfall of our economy, including the downfall of our mortgage companies, financial institutions, and automotive industry. If the quality industry and profession, as a whole, were doing a good job, we should have been much better prepared as a country in predicting and heading off a large portion of the economic mess we are currently in. The current state of the economy is one of low quality and we should shoulder some of the blame in allowing it to get to this point. I feel that I haven’t done enough to promote true quality ideals in all industries and facets of life and I would hope that many of you feel the same.

Let’s face it quality professionals, we’re a weak bunch. How many CEOs of any size of a company, in any type of industry, have a quality background? When is the last time that you talked to a CEO and asked him what his background was, and he exclaimed that he had once been the quality manager or director of quality? I’ve worked with many different companies as a consultant and trainer for more than 14 years, and I have yet to meet one. I have yet to have even hear or read about a CEO with a quality background.

Even large organizations that promote quality are often not run by people with any sort of quality background. I can remember listening to a panel discussion at a conference in which the three CEOs of the three top registrars were speaking. One of them, almost boastfully proclaimed, “I am not a quality guy.” I think that statement had two meanings.
Challenge No. 1
We must ask ourselves, why are we a weak bunch? Why do we not have more quality-type people at the highest levels within a company? How can we promote quality ideals at the highest levels? How can we get more quality people to run organizations? Once we’ve answered those questions, we must do something about it.

As I write this article, I see that president-elect Barack Obama has named Nancy Killefer as his administration’s chief performance officer, creating a new White House position as part of an effort to “eliminate government waste and improve efficiency.” Perhaps this is a start, but it says nothing of improving the quality of services which would in turn “eliminate government waste and improve efficiency.” I don’t believe that anyone in government is anywhere close to understanding that improving quality is how you eliminate waste and improve efficiency. When reviewing Nancy’s background, I see nothing in her résumé regarding quality. I found that she made many references to improving the effectiveness and efficiencies of organizations, including the Internal Revenue Service. Phew—I feel a whole lot better now.

Create constancy of purpose in improving products/services vs. greed
In the 1980s, CEOs of major corporations began to truly listen to the virtues of quality primarily because the United States was embroiled in a crisis of producing products of inferior quality, especially in comparison with what was being produced in Japan.

Many of these strides came as a result of U.S. management listening to a man named W. Edwards Deming after he was introduced to the American public in a 1980 NBC documentary produced by Clare Crawford-Mason, “If Japan Can, Why Can’t We?”

The first point of Deming’s once infamous 14 Points for Management is “Create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.”

In today’s world of business, as it was in 1980, if you were to ask U.S. CEOs, “What is the purpose of your business?” most would answer, “To make money.” If you then gave truth serum to the same CEOs (this is a must) and then asked each one, “What is the purpose of your life?” most would have the same answer.

This has been played out in the public eye and to the detriment of thousands of employees as we watched one CEO after another fall to the temptation of greed and short-term thinking—the exact opposite of what Deming was teaching business and quality executives. We saw how Bernard Ebbers destroyed WorldCom, Dennis Kozlowski nearly destroyed Tyco, Joseph Berardino brought down Arthur Andersen, and of course, Kenneth Lay and Jeffrey Skilling blew up the once mammoth Enron.

If you were to ask the few CEOs of those companies who truly believe, breathe, practice, and live in continual improvement, quality, and waste elimination, “What is the purpose of your business?” they would provide such answers as, “Improve society… improve quality of life for our employees… provide and maintain jobs… be competitive in the long run.” The purpose of their being in business is one based on higher character, morals, and ethics, and it would benefit society, employees, community, environment, and last, themselves.

The opposite of Deming’s first point is indeed “greed.” I can’t help but remember back to my grade school days and learning about greed, one of the Seven Deadly Sins. A quick check on Wikipedia states that greed includes, “disloyalty, deliberate betrayal, or treason, especially for personal gain, for example through bribery. scavenging and hoarding of materials or objects, theft and robbery, especially by means of violence, trickery, or manipulation of authority are all actions that may be inspired by greed.”

Does this not describe the actions of Ebbers, Berardino, Lay, and Skilling? Does this describe your own CEOs?

Freddie Mac, Fannie Mae, constancy of purpose, and greed
Does this also not describe the actions of the government-sponsored home mortgage underwriters Fannie Mae and Freddie Mac as they began to extend home mortgages to individuals whose credit was generally not good enough to qualify for conventional loans? Starting in 1999 and encouraged by the Democratic and Republican administrations, Freddie and Fannie simply extended mortgages by relaxing lending standards creating more false demand than the market could handle. Freddie and Fannie’s risk was then spread across many financial and insurance organizations via the development of fanciful financial mechanisms that masked the major problems that would eventually occur one day and did.

As quality professionals, if we were to use what we’ve practiced all of our lives, we would have plotted average home prices on a control chart and realized that the housing industry was “out of control” as housing prices “trended” up for more than seven points (years) in a row. I knew this. Others in the quality profession knew this. But I didn’t do enough to help shut down the process and address the special causes of variation (relaxed lending standards and fanciful mechanisms for spreading lender risk) before we began producing defective products (foreclosures). I apologize for not doing my part. I believe that each quality professional should apologize for not doing his or her part. Deming would have.

Jim Womack, a well respected, lean professional succinctly wrote the following in his November 13, 2008 e-letter entitled, “Mega Mura Bubble Trouble” (www.lean.org):

“Mega mura (variation) by contrast applies to large and lengthy shifts in total demand by external customers across the economy. Unfortunately, a boom in demand—caused in the current case by the surge in real estate prices fueled by low interest rates and relaxed lending standards—always leads to a bust. The sad part of these episodes—which are as old as market economies—is that they are almost never due to a fundamental change in consumer desires. Millions more Americans and Europeans didn’t suddenly want to own a home or buy a bigger home in the years after 2001. They presumably had always had these desires but lacked the money to act on them. Instead the boom was caused by manipulation of the financial system—through cheap credit, relaxed lending standards, and fanciful mechanisms for spreading lender risk—to pump up the housing market for the short-term benefit of those doing the pumping.”

Freddie, Fannie, and all of the other investment banks and insurance companies involved in the process of falsely increasing housing demand focused on greed and increasing short-term profits at the expense of long term stability of their business and their customer base. The purpose of their business was “to make money,” not “create constancy of purpose toward improvement of product and service, with the aim to become competitive and to stay in business, and to provide jobs.”

Without a doubt, they failed to hold up Deming’s first point and we failed to spread the word of Deming and stable systems and how control charts should have used to diffuse a special cause. Again, I apologize.

I’m not done apologizing, but I figure there’s only so much self-flagellation you can stand in one sitting… even if it’s from a quality consultant. So be sure to come back for Part 2 of this article on January 27.

And in case you didn't hear my feelings on the new ISO 9001:2008, be sure to watch my video commentary by clicking here.


About The Author

Mike Micklewright’s picture

Mike Micklewright

Mike Micklewright has been teaching and facilitating quality and lean principles worldwide for more than 25 years. He specializes in creating lean and continuous improvement cultures, and has implemented continuous improvement systems and facilitated kaizen/Six Sigma events in hundreds of organizations in the aerospace, automotive, entertainment, manufacturing, food, healthcare, and warehousing industries. Micklewright is the U.S. director and senior consultant for Kaizen Institute. He has an engineering degree from the University of Illinois, and he is ASQ-certified as a Six Sigma Black Belt, quality auditor, quality engineer, manager of quality/operational excellence, and supply chain analyst.

Micklewright hosts a video training series by Kaizen Institute on integrating lean and quality management systems in order to reduce waste.


GM Vice President's comments

I am about to buy a new vehicle. I was considering looking at GM vehicles until I heard an interview with GM Vice Chairman Bob Lutz on npr.org. It is transcribed here: http://www.npr.org/templates/story/story.php?storyId=99253055. Here is the part that made me decide not to try GM:

Lutz has been in the car business for 45 years, so it's a change for him to operate on the federal government's nickel.

"I've never quite been in this situation before of getting a massive pay cut, no bonus, no longer allowed to stay in decent hotels, no corporate airplane. I have to stand in line at the Northwest counter," Lutz says. "I've never quite experienced this before. I'll let you know a year from now what it's like."