Three Sigma Systems

In Tibetan, authentic presence is wangthang, which literally means, ‘field of power’… The cause or the virtue that brings about authentic presence is emptying out and letting go. You have to be without clinging.

Chogyam Trungpa

My wife is a Physical Therapist. She has explained to me that walking upright, which is a means of locomotion most fully expressed by human beings, is actually quite remarkable. The process is one of taking a stable system and intentionally driving it into a state of instability — falling — and then regaining stability, over and over again.

First we stand. Next we hurl ourselves forward into a fall. We then catch our fall and regain our stance. If you watch a human infant learning to walk, you will see this instinctual process unfolding quite clearly.

The process of knowing (of creating knowledge) is very similar to this. We construct a stable explanation of the world and stand on it. As the world changes beneath our minds, we fall. As we fall, we struggle to reconcile our explanation of the world in order to reassert a stable stance.

In ideology and dogma, we try to cling to a stable stance — a truth — from which we will no longer fall and from which we need no longer move forward. But the world does not comply with our attempts to avoid our fear of falling. The world changes beneath our clinging minds and, sooner or later, we must fall despite our best efforts.

Since the world is always changing beneath our minds,  the length of the fall we will take in knowing will be greater the longer we try to avoid falling. The danger of relying on ideology and dogma increases over time. History is filled with tales of fatal falls.

There is another option though. We can chose to master the art of knowing in much the same way we master the art of walking.

Like walking, the process of knowing — this falling forward —- goes unexamined in our everyday experience. To change this — to depart the habit and master the art —- we must be letting go in much the same way as the infant learns to walk by falling. To move forward, we must step off the brink of our belief, stepping into the fall, and trust that we will survive. In this way our knowing becomes more powerfully useful given our aims and intentions. Our journeying minds can then take us where we chose to go!

I call this process surfing the wave of knowledge creation.

Adapted from a comment I submitted to a recent post by Simon Johnson on his Baseline Scenario blog.

Too often, we fall into the trap of the cyclical model asserted by the quasi-scientific, nee apologetic, of economic theory, that attempts to define social interaction as if transaction reflects some sort of discrete closed system that abides by external and “natural” mathematical principles and behavioral laws.

The only abiding principle of relevance is that human beings are inherently social and in their sociality, they seek to devise methods for organizing their behavior into predictable patterns of collaborative action. (The invention of money as a medium of value exchange is one example.) When the material interests of one group become irreconcilably divergent from another’s, there is war, fought using the means at hand. Read more…

The gadgets you own will soon be you.

NYT today – “Cellphones Let Shoppers Point, Click and Purchase“ “We see the smartphone being used more and more in the shopping experience,” said Dick Cantwell, Cisco’s vice president for retail at Cisco’s Internet business solutions group.

As the more daring retailers see it, the potential benefits outweigh the risks. More aggressive profiling of shoppers — along with a novel, entertaining shopping experience — could help increase sales. And the technology may help retailers save money by cutting workers, essentially substituting electronic guidance for store clerks.

The gadget revolution is ramping up! Technological innovators understand that people are fed up with having to be tied to their homes in order to insulate themselves from the stress of interacting with fleshy, sneezy, dirty, human beings. In the beginning, avoiding human contact on the run was limited to primitive devices like the Sony Walkman. Next came the sexy iPod. But it was the ubiquitous mobile phone that made it possible for the average Joe to turn-on, plug-in, and tune out, no matter how many living, breathing, people were polluting his physical space.

Today, iPhones and Smart Phones are transforming our on-the-go peoplescape into a bloodless and stress free cyborg community. The unpleasant ambiguities of human contact — the gestures and smells and shifty glances of others —- can be scrubbed into succinct twitters, 6 mega-pixel snapshots, and instant data scans. Hands sullied by shakes, pats, hugs, and counting money, will soon become a thing of the past. The possibilities are as limitless as the imagination of those who want your money but not the messy inconvenience of you.

It’s not often that I agree with Charles Krauthammer, but in his recent opinion piece, “Toyota and the price of modernity“, he is on the right track when he says,

The question is: How do you distinguish the idiosyncratic failure from the systemic — for example, the single lemon that came off the auto assembly line versus an intrinsic problem inherent in that model’s engineering? How do you separate one patient’s physiology producing a drug side effect versus an intrinsic problem with a drug that makes it unacceptably dangerous?

Perfection is not an option. The question that any manufacturer must ask is if the causes of a problem observed are “assignable” or “common”. If something assignable is going on, for example, a bad batch of gas pedals, they can “fix” the problem and move on. But if the problem is systematic — if for example, the design process discounts safety issues in favor of volume production — the system must be changed as a whole or similar problems will keep reoccurring in various ways.

One method that can help determine if a problem cause is “assignable” or “common” is to chart the events over time and look to see if they fall outside of 3-sigma limits (assignable) or inside those limits (common). This will not provide a certain answer, but it can provide a good indication of the nature of the problem’s cause and how to best address it.

In the case of Toyota, the incidence of sudden acceleration is almost certainly outside 3-sigma. In other words, it is very rare. Toyota has attempted to assign the source of the problem and fix it — dangerous floor mats and bad batches of accelerator assemblies. But in his testimony before the U.S. congress, the leader of Toyota, Aiko Toyoda, takes the position that the problem is common (i.e. systemic) in his company. He says his company became focused on volume at the expense of safety and quality. This is a very interesting twist for a Japanese company that is expert in the use of SPC (Statistical Process Control.)

It is almost certain that Toyoda has internal company data that indicate systematic problems to which we are not privy. Perfection is never an option. But I suspect that the recent problems that have garnered so much attention, are most likely not systemic in nature. The reason Toyoda addresses them as systemic is because  American audiences, who have no understanding of the nature of variability, have seized upon a very rare but dramatic event, and erroneously extrapolated from that rare event the conclusion that Toyota products are unsafe and that Toyota is a negligent company. Aiko Toyoda cannot hope nor dare to teach American audiences about the nature of variation. His only option in the face of American hysteria, is to take full responsibility and hopefully move forward.

Are systemic changes needed at Toyota? Toyota is one of the few companies that has the knowledge and methodology necessary to answer that question. But if systemic changes are not indicated, making such changes will likely do more harm than good. In other words, shaking up the whole company as a response to assignable causes may hurt the company, its members, and the consumer in unpredictable ways.

Krauthammer does a pretty good job of pointing out how American audiences consistently confuse common and assignable cause and, one way or another, make decisions that do more harm than good.

Americans habitually confuse common cause with assignable causes, and as a consequence they are constantly looking for, and finding, someone to blame (assign) for their troubles. In America, finding bad guys is pretty easy because we have a system the reliably and predictably produces bad guys — crooks, cons, greedy actors, corrupt politicians, Republicans, Democrats, preachers, atheists, Socialists, Capitalists, and my next door neighbor, Fred.

Once you begin to understand the nature of variation, the cause of the problems that plague us the most, become pretty obvious. Generally speaking, they are COMMON. This tells us that we need to stop looking for bad guys and start working to improve or maybe even transform, our system.

A sound of cornered-animal fear and hate and surrender and defiance . . . like the last sound the treed and shot and falling animal makes as the dogs get him, when he finally doesn’t care about anything but himself and his dying.

Ken Kesey (1935 – ) One Flew Over the Cuckoo’s Nest, 1962

Poor Joe Stack, may he rest in peace, is already becoming a folk hero among the addled populist right wing, including the incredibly confused “Tea Party” crowd, who enshrine an ideology in which they  imagine that each person should be “free” from “big government” to pursue his or her self interest. Yet their model of a society unfettered by “big government” can only create a predator-prey feeding chain in which a few big animals feed on the many smaller animals. This is exactly what we should expect to get when we cleave to the idea of free markets unfettered by government.

Yesterday Joe, who was neither insane nor crazy, only dazed, confused, thrashing and biting from his corner, got eaten.

In an unfettered free market, the relationship between predator and prey — hunter and hunted — is really not that difficult to understand. Read more…

Think about it! The current Toyota story tells us much more about U.S. manufacturers and their market mindset than about Toyota Motors!

Toyota manufacturers automobiles for a profit. In part at least, they adopted many of the ideas put forth by Deming, and in combination with their cultural legacy and the blatant stupidity of their competitors, they have managed to do much better than the “Big Three” in the U.S. Now if U.S. manufacturers had more brains than guile, they would be grateful to Toyota for being a great competitor, and would take advantage of that to make their products even better, but that is not what is going on. Read more…

In my previous post I divulged the secret of success: “opacity“.

By masking your intentions and knowledge from others, you create information asymmetry the gives you an unbeatable edge. The asymmetry produced by intentional deception is the key to understanding why free-market theory does not enable prediction and is therefore, not viable as theory. It is rather, a dogmatic ideology that serves con-artists, bandits, and other masked men.

I offer the following video clip from the movie “The Princess Bride” as a case-in-point illustration of how an opaque masked man of modest mental faculties defeats “the smartest man in the world”.

(Be sure to take notes!)

PB.mov.ff

Here’s a current events tie-in with my “Secret of Success” post.

From SailWorld.com:

There is little doubt that the many Court actions over the 33rd America’s Cup have been a major turn-off for the sport and sailing fans generally.

In a couple of days the sport will see a sailing match of the likes that has never been seen before and probably will never see again. Two of the highest performance yachts will square off against each other in a fascinating contest, conducted under the bare minimum of sailing rules.

Money is no object

Two of the world’s most “successful” guys are in the midst of a protracted battle royal that will culminate 25 miles off the coast of Valencia, Spain, when one or the other cheats his way to two out of three meaningless wins in the 33rd America’s Cup sailing regatta.

My Bay Area neighbor, “successful” self-made Larry Ellison, the 66 year old founder and CEO of Oracle and 9th richest man in the world, is spitting, scratching, and yowling in his fight with 44 year-old Ernesto Bertarelli, the European aristocrat who ranks as the 52nd richest in the world by virtue of the bio-tech empire he inherited

It’s interesting, and very sad , to watch these two going at it, but the lessons to be learned, as I suggested in my previous post, the secret of “successful” people is their aim to manipulate the system to their personal advantage rather than improve the system so that everyone can win. Read more…

This post is a bit rocky and I have vacillated between whether to delete or not-to-delete. Since my blogging policy is to never delete (”The moving hand having writ, moves on..”), I will let it stand but I ask that you please read the comments accompanying this post, which may or may not help matters. If you use my secret of success, be aware  that I make no warranty, express or implied, that your results will be any better than those realized through random chance. Special thanks to John Dowd for thinking on this.

Today I am going to tell you the secret of success. When I say success, I mean the process of acquiring wealth, power, and influence that exceeds by orders of magnitude, that of mere mortals. Successful people are the top dogs that dominate the crowd and, because of their domination, they are often described as “leaders”, though that attribution is debatable. They are the corporate executives, politicians, financiers, gamblers, pundits and preachers who seem to end up running the show wherever the show is being run.

Over the course of my 30 year career as a business consultant I have rubbed shoulders with quite a few successful people. For most of that time, my relationship with these individuals was, as they say, strictly business. My knowledge of them was limited to the workplace. Although no one who knows me would ever accuse me of being obsequious, my relation with power tended to be one  in which I tolerated and even cultivated, a foggy subservience to those who retained me and signed my paychecks. To put it quite bluntly, my job was to give advice, but never to the extent that the advice given would  jeopardize my survival. I reasoned, as a favorite professor advised  many years ago, you can’t influence the system if you are cast out from that system. You also can’t pay the rent. Read more…

I hate being scammed, no matter who is doing it, and the Toyota bashing frenzy of the past week reeks of a scam designed to undermine Toyota’s success and buoy up American car makers who are both unwilling and unable to compete on matters of substance.

Yesterday, the Wall Street Journal reported that U.S. Transportation Secretary Ray LaHood, when testifying before the House appropriations committee, was asked what advice he would give to owners of Toyotas subject to the recall, he replied,

“My advice is, if anybody owns one of these vehicles, stop driving it, take it to the Toyota dealer because they believe they have the fix for it,”

Soon after, LaHood amended his statement to the press by removing the phrase “stop driving it”, but not soon enough to prevent shares in Toyota stock from plummeting.

When it comes to defective engineering and manufacturing, nobody can hold a candle to U.S. auto manufacturers. If you don’t believe me, look up the Chevy Corvair (made Ralph Nader famous) and the Ford Pinto, both of which earned their reputations as death machines. But those headline making events were just the tip of the iceberg. In years passed, whenever I bought a new car manufactured in the U.S., I knew I was in for it. The first few months of ownership always involved battling with the dealership to get things fixed. Do you remember the “Lemon Laws“. It came into being for one reason only. U. S. manufacturers built a lot of lemons and if you could get your car classified as a lemon, the manufacturer would be required to buy it back from you. Of course getting a car classified as a lemon could get your killed.

Ford Pinto Crash Test

US Auto Recalls

Read more…

NPR ran a story today entitled “Catching Hospital Workers Dirty-Handed” in which they report:

“According to the CDC, health care-associated infections kill about 100,000 Americans a year, at a cost of billions of dollars.”

One solution being evaluated is the use of hi-tech wireless technology to spy on the hand-washing practices of individual doctors, nurses, and other caregivers.

The solutions we come up with depend on how we frame our questions. For example, in the NPR story they report that “The standard protocol in hospitals is for doctors and nurses to wash their hands on the way in to see a patient, and on the way out. But that doesn’t always happen — they get busy; they forget.”

If we frame the question in terms of who’s to blame…

• Workers who forget to wash
• Workers who are too busy to wash
• Workers who are too stupid to wash
• Workers who are hydrophobic
• Workers who want to spread death and disease

We end up with the answer that inspecting and policing workers is the best solution. Of course, when we institute a system for inspecting and policing people,  we also create a system of inspectors and enforcers against defectives and criminals.

Now think about this. That NPR report also says that, “Studies show that only about 40 percent of health care workers in the U.S. wash their hands as often as they should.”

No need for control charts here! Sixty percent non-sanitizers is a big, big, signal telling us that the problem is not one of individual performance. We are not dealing with outliers! If we understand the nature of a system and variation, we know immediately that we have a system that predictably and reliably produces 60% non-sanitized hands! We might be able to inspect out a small fraction of non-sanitized hands, at great expense, but we are foolish to expect a system that produces 60% non-sanitized hands to do what it does not do.

I'm sure you can come up with something better than this!

What if we frame the question differently? What if we ask, “By what means can we best assure that healthcare workers’ hands are free of disease bearing agents as those workers move from patient to patient?

Can we design a worker-sanitizing system that minimizes worker decision-making requirements regarding whether to sanitize or not to sanitize?

If we could accomplish this, wouldn’t  everybody win?

When lawyer Dan Pink tackles the subject of motivation, he does what lawyers are apt to do. He gets the details right but almost everything else wrong.

The problem is that Pink continues to work from a fallaciously reductive theoretical foundation. Because of this, the techniques he suggests are correct, but the explanation he provides is upside down. This leads him to incorrectly dichotomize motivation into “extrinsic” and “intrinsic”. He is not alone in making this disastrous error. Read more…

In today’s NY Times business section:

TOKYO — …Toyota’s problems mounted in North America with the announcement of a halt to sales and manufacturing of the bulk of its cars.

As a sailor, I find many parallels between the enterprise of sailing small boats on big oceans and the business of doing business. In making our way at sea the crew, which is comprised all who are aboard, share a set of aims and a system for realizing those aims—their boat, their methods, and their ability to work together. Seamanship represents the whole of their theory, skill, and methods for voyaging.

In sailing, heaving to  is a way of slowing a sail boat’s forward progress, fixing the helm and foresail position so that the boat doesn’t have to be actively steered.

When I teach others to sail, I teach that even though crossing oceans under sail is a most practical endeavor, the dictates of well-formed theory is the key to survival. This is called seamanship. What seems expedient in moments of adversity must always meet some test of a broader understanding of the titanic forces that are beyond a crew’s control. When theory and practice are challenged at a fundamental level—when the best course of action cannot be determined with reasonable certainty—-the crew must, if at all possible, heave-to.

The idea of heaving-to does not come easily to our ambitious animal spirits. In situations of adversity we are prone to reaction rather than reflection. But actions taken on the basis of faulty understanding are more apt to make things worse, which prompts more action, which makes things worse, and so on. As Dr. W. E. Deming explained, if we start reacting to individual data points when it is our system itself that is producing unwanted variation (lack of predictability) then we are “off to the Milky Way”.

Toyota, the Japanese automaker, calls their seamanship, “The Toyota Way” and that body of theory is now being put to the test. Superficially, they have a problem with a sticking gas pedal on their popular Camrys and Corollas and superficially the problem and solution are all too familiar: Do a recall. Engineer a solution. Fix the gas pedals. But it appears that Toyota sees the problem in a broader light. The crew regard the gas pedal problem as a symptom of a larger challenge to their system. That larger challenge includes the titanic economic forces that are raging in the world today that have loosed a chaos of increasing unpredictability and undermined their assumptions that have become too tidy.

“By chasing numbers, they (Toyota) were becoming seriously outstretched,” said Masahiro Fukuda, manager of research at Fourin, a global automotive research company based in Nagoya, Japan. “Many of us weren’t surprised over the big recalls; we were more surprised that it took Toyota so long.”

“Toyota’s president, Akio Toyoda, has himself berated the company for excessive confidence, which he said had set the company up for a painful fall in the global economic crisis.”

“But Mr. Fukuda said he saw Toyota’s decision to suspend sales as a typical Toyota move. “At a Toyota factory line, when something goes wrong, they stop the whole line.” he said. “Now Toyota is doing the same thing, at the company level. That’s the Toyota way.”

Is Toyota’s shutdown merely a damage control tactic or does it reflect genuine seamanship? By shutting down their manufacturing and sales operations, it appears that Toyota is putting their money where their mouth is.

This post was composed as a reply to a protracted LinkedIn discussion regarding the nature of systems. I posted on my blog because of its length.

NOTE: To Charles and Michael, and other Participants in the LinkedIn Systems Thinking thread initiated by Spyros Bonatsos. If, after reading this, you remain interested, I suggest reading my sticky post about 3-sigma and a theory of knowledge.

First, despite appearances, I do not think that the exchange between Charles Weatherford and myself was very far a-field from the central topic. In my final exchange with Charles (last night PST), he took issue with my suggestion that Western societies are the embodiment of a cultural system grounded in Social Darwinism. In other words, it is grounded in an ill-formed vision of Darwin’s theory in which Herbert Spencer’s “survival of the fittest” governs human relations.

At the same time, Michael Ervick posted a simple yet profound question. “Do systems learn?”. Michael has posed this question in the past on other forums, and it has always intrigued me, but the effort required to propose an answer kept me from trying. In this post, I am going to try to respond to the questions posed by both Charles and Michael. I want to caution readers that this is not easy ground. Thinking about thinking is as challenging as it gets, but nothing could be more on-topic when exploring “Systems Thinking”. Wish me luck!  (I will happily return to the thread-in-point if the discussants decide to reply on LinkedIn.)

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Read more…

In the “Small Business” section of today’s New York Times is an article entitled, “7 Businesses That Did  Not Survive”  detailing the case histories of some small businesses that failed during 2009.

As a long-time consultant to business and now, a SCORE volunteer, I have seen plenty of small business failures. In retrospect, the owners of failed businesses can always come up with a list of reasons for their failure, but in the final analysis, it all boils down to the same thing. In the language of mountain climbing, they overextended their lead.

When you are climbing a mountain, you make some predictions about how things will go as you ascend and then commit to some level of acceptable risk. As you lead the way upward, you place some points of protection, called belay points, in the rock and clip in a climbing rope. While you are always looking to move upward, the prospect of unpredictable adversity guides your every action. As leader you are always asking, “What if”, and you make every effort to guard against future events that cannot be known with certainty.

As leader, if you take a fall it will be, roughly speaking, twice the distance from your last point of prediction. If your lead is overextended, your fall will be so violent that it will tear your protection point from the rock. Long falls usually result in serious injury or death.

In climbing and in business, the one thing we can be certain of is that things go up and things go down. The science and art of business involves learning how to ascend AND descend without getting killed.

“Go for it” is not enough. In my experience no one teaches small business entrepreneurs methods for predicting and managing risk. Come to think of it, the leaders of our biggest banks don’t get it either! They solve the problem by getting some other poor suckers to run the lead for them. It’s called BAILOUT.