Edwards Deming expressed that the emphasis on short-term profits was definitely detrimental to organizations. This was Deming’s second of the seven deadly diseases that plague companies. Deming in my opinion is the Nostradamus of western business. Deming wrote “Pursuit of the quarterly dividend and short-term profit defeat constancy of purpose”. Remember constancy of purpose is a company’s focus and plan to stay in business (and improve) over a long period of time. Constancy of purpose plans are measured in years not months.
The singular goal of western countries publicly traded companies to maximize profits for the benefit of shareholders can run in direct conflict with the Deming model. This actually crossed my mind when I saw a television commercial that ended something like this “Our Customers come first because we don’t have shareholders”.
Today’s financial markets are too focused on short-term investments that ignore future risks and wider consequences. Actually most investors want long term growth and have little concern for the quarterly gyration of earnings. The market makers however exert huge pressure on CEO’s to perform to quarterly metrics in direct contradiction to the Deming model.
How does this affect you, the lean practitioner? A typical conflict arises in the creation of kanban lines. Removing the waste in the process along creation both linkage and flow doesn’t always reduce inventory. Your turns will be better operating costs will reduce and customer satisfaction will rise. The problem is that the normal flow of bubbles, bottlenecks and chaos to empty all inventory and ship product just prior to end of quarter might be more conducive to those measured quarterly. Most material managers recognize that 80% of the work is performed during the last 20% of time available. This drives lean practitioners crazy! Eventually this method will implode the harbingers of this fact are typically ignored.
Consider the multimillion bailout the government gave the financial industry. The mortgage crisis was based on generating short term profits by bundling and reselling high risk investments. If profits continue to be personal while losses are socialized moving from short term to long term planning will be difficult.
Edwards Deming made it clear that focusing on short term profits is not a sustainable proposition.
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Hi David good piece though one thing I would have said differently is:
“The singular goal of western countries publicly traded companies to maximize profits for the benefit of shareholders can run in direct conflict with the Deming model.”
I would have used The singular goal of western countries publicly traded companies to maximize profits for the benefit of shareholders does run in direct conflict with the Deming model.
Personally I feel there is no way to following Deming’s ideas and focus on the short-term or even surviving for the long-term. But if you follow Deming’s ideas and focus on growth you can make a company become a living entity, which has to either grow or die. The rarely discussed rule of life and economics is that there are only two options growth or death for any living entity.
I totally agree! Thanks for your input!