Quality and Innovation

According to some researchers, it’s the end of the world as we know it – sometime this century, in fact. Economists and policy researchers have actually envisioned it coming for about three centuries, though.

The most recent tap on this subject came on March 7, 2009, when journalist and Hot, Flat, and Crowded author Thomas L. Friedman published an Op-Ed in the Washington Post, entitled “Is the Inflection Near?” He describes how the economic, financial and political systems that we have established in the world – particularly in the west – are inherently unsustainable, and that in order to achieve a truly green world, our fundamental systems for living life must shift:

Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the crisis of 2008 represents something much more fundamental than a deep recession? What if it’s telling us that the whole growth model we created over the last 50 years is simply unsustainable economically and ecologically and that 2008 was when we hit the wall — when Mother Nature and the market both said: “No more.”

We have created a system for growth that depended on our building more and more stores to sell more and more stuff made in more and more factories in China, powered by more and more coal that would cause more and more climate change but earn China more and more dollars to buy more and more U.S. T-bills so America would have more and more money to build more and more stores and sell more and more stuff that would employ more and more Chinese …

We can’t do this anymore.

What would you think if I told you that this was actually not a new idea, and that the notions Friedman presents were determined by a simulation done over thirty-five years ago? Furthermore, what if I let you in on the fact that people have been thinking about this conundrum since the late 1700′s? It may sound outlandish, but in this case, truth is stranger than fiction.

The simulation that I refer to was done in 1972, with a model called World3 which was coded in the object-oriented Modelica environment. It’s the subject of the Club of Rome commissioned study called “The Limits to Growth” (full text is here). Although the model has received criticism for some of its assumptions, a redaction in 2002 upheld many of the outcomes of the model. In 2009, Dr. Dennis L. Meadows (who directed this research) was awarded the 25th Japan Prize from The Science and Technology Foundation of Japan. Recall that the Japanese were the ones who initially recognized Dr. W. Edwards Deming for his contributions to revitalizing the economy – decades before the Americans embraced Deming’s teachings – and spawned the quality revolution in U.S. business in the late 1970′s and 1980′s that has embossed the landscape of how we do business today. From the Japan Prize announcement:

Dr. Dennis L. Meadows served as Research Director for the project on “The Limits to Growth,” for the Club of Rome in 1972. Employing a system simulation model called “World3,” his report demonstrated that if certain limiting factors of the earth’s physical capacity – such as resources, the environment, and land – are not recognized, mankind will soon find itself in a dangerous situation. The conflict between the limited capacity of the earth and the expansion of the population accompanied by economic growth could lead to general societal collapse. The report said that to avert this outcome, it is necessary that the goals of zero population growth and zero expansion in use of materials be attained as soon as possible. The report had an enormous impact on a world that had continued to grow both economically and in population since World War II.

We also have a rich literature dating back centuries that has studied the relationships between population, environment and technology. In the 1700′s, English economist Thomas Robert Malthus studied these relationships in terms of the projected effects of uncontrolled population growth. “Before Malthus, populations were considered to be an asset. After Malthus, the concept of land acquisition to support “future large populations” became a motivating factor for war.” (citation) The 20th century Boserupian Theory of Ester Boserup, in contrast, suggests that advances in technology will drive the capacity of the world to support population. Researchers like Steinmann & Komlos (1988) have simulated the interplay between both paradigms over time and suggest that there is a cyclical dominance. (I note that references to Malthus and Boserup, let alone Meadows’ World3 model, are rarely on the lips of policymakers.)

In my opinion, it is not climate change we should be worried about per se, but the social, economic and global political system that drives human interactions with each other and with the environment. Climate change may be a symptom, but it is just a tracer for the attitudes of unbounded material growth that are contributing to the effects (if you want to learn about climate change and policy, Prometheus is a good place to start – my point is not to argue the merits of “is it” or “isn’t it” happening because others including Pielke, Jr. do that very well). Regarding climate change, we need to decode what the data is trying to tell us about how we’ve structured our large-scale systems of interaction with one another – rather than merely trying to control our personal “carbon footprints” or recycle more (though these may be important ingredients in the solution).

There is nothing new under the sun. Only today, the forces of production, consumption and population have metamorphosed into a crisis of sustainability – a “perfect storm” to test our ability to live and work in the limit case.

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Steinmann, Gunter & Komlos, John (1988). Population growth and economic development in the very long run: a simulation model of three revolutions. Mathematical Social Sciences, Vol. 16, No. 1, Aug 1988. 49-63 pp. Amsterdam, Netherlands.

John Hunter shared some excerpts from Warren Buffett’s 2009 Letter to Shareholders. I particularly liked this one part where he reflects on the outcomes of economic modeling and forecasting:

Investors should be skeptical of history-based models. Constructed by a nerdy-sounding priesthood using esoteric terms such as beta, gamma, sigma and the like, these models tend to look impressive. Too often, though, investors forget to examine the assumptions behind the symbols. Our advice: Beware of geeks bearing formulas.

I’d like to amend this: Beware of geeks bearing formulas who a) can’t tell you what every part of the derivation means, b) don’t know the model’s underlying assumptions, and c) don’t know what “threats to validity” are. (And if you’re the geek in question, be able to explain how your models and forecasts work!!)

Models can be a great way to capture the dynamics of social and technical systems, and simulations can help us explore how these systems will evolve over time – but how those models are initialized, and the simplifying assumptions they use to generate results, are just as important as the answers they propose.

A couple days ago, Sonia Simone presented an article entitled “Four Old-School Reasons Why You Can Thrive in this Recession”. The general philosophy of her insights is straightforward:

It’s impossible to really see massive change when we’re still in the middle of it. But there are a handful of things you can bank on. One of them is that human nature doesn’t fundamentally change, even though the environment can change radically… So it might be time to think about the ancient traits that have helped entrepreneurs since the dawn of history, and how they relate to the emerging 21st-century economy.

She presents four notions: self-reliance, great ideas, “the village is your customer”, and “it’s in your DNA”. The one I want to focus on is #3 (if you want to read about the others, please visit the full article). When the village is your customer, Simone notes, quality becomes the focal element of the production and customer service processes. Hundreds of years ago, and into the early decades of the 20th century, people knew their neighbors in the community who made the products and provided the services. Personal relationships would form between you and your baker, your pharmacist, your doctor, your grocer, and so on. If your grocer sold you rotten food, for example, he would violate a trust relationship that you had established over a long period of time. Not only would breaking this trust hurt his business, but it might hurt his feelings too if you shared your discontent with your neighbors or gave him a dirty look while walking down the street.

But times changed remarkably. By the late 20th century, production, consumption and service had all become anonymous – the guy who services your car is probably not someone you know personally, nor is your mailman a personal friend. As a result, less personal impetus to provide high quality translated into an organizational imperative to deliver high quality. Without the driving force from within to provide excellent products and services, the company would naturally become the enforcer of high quality. (And without this enforcement, well, it would be a roll of the dice whether you got high quality products and services or not.)

Now fast forward to 2009 and the Web 2.0 world:

the village is back. If we blow it, customers publicly rap on our window (with social media, blogs or Twitter) and give us a piece of their mind.

Once again, our reputation and our products are one and the same. What we create doesn’t have to be perfect, but it does have to show that we give a damn.

The inconvenient part is that the village isn’t stuck with you. If your baguette isn’t great, your customer can FedEx something from an artisanal bakery in Napa or Madison or Boca Raton.

The cool part, though, is that if you make something handmade (even if it’s delivered in pixels), personal, and/or magnificently useful, your village can and will find you. Whether you make homespun yarn or an interactive course on how to start a dog-walking business, your product can find its own profitable village of happy customers.

On a related note, my next door neighbor is a dentist. She’s been trying to get me to sign up as a patient at her office for a while, but I’m nervous (not because I don’t like or trust her,which I do, but because she’s a dentist). Every time she asks me when I’m going to make an appointment, and I nervously shirk, her response is usually pretty consistent: “Do you really think I’m going to hurt you, knowing that I have to look at you every day across the yard?”

The personal relationship is a driver for providing high quality. How can we make personal relationships a component of a quality-driven strategy?

The California Zephyr, Amtrak train 6 out of Denver, stopped for about 5 minutes this morning at the tiny little station of Osceola, Iowa. It was just enough time for me to turn my wireless on, surf around for an unsecured network with a good signal, and check my email, the weather radar, and this morning’s news – all before we quickly chugged out of town and the connection dropped. But it was all the time I needed to get a few critical things done that I don’t typically do on my Blackberry. (Thank you, Belkin_51_Wireless of Osceola!) I told Ron how happy I was to be able to do this, and he mentioned that this was a good example of why he’s thinking about unsecuring his personal network – so he can contribute to this pool of “random acts of kindness”.

Sharing wireless is a perfect example of doing something for personal good (installing a wireless network in your house) which can also contribute to the good of society (making the network unsecured so strangers can use it when they’re passing through). Like any other sociotechnical system described by Brian Whitworth, for a “free wireless for all” system to be sustainable, you’d like for those strangers to be good citizens who don’t commit anti-social acts of sabotage in response to your generosity. Cybersecurity experts might have a fit thinking about such risky behavior (as you can tell, I’m not one of them and so haven’t thought through these implications at all).

I don’t mind if my neighbors use my wireless network. In fact, sometimes (when my router has been down) I’ve even used theirs to Google for information so I can get my system up and running again. (Thanks Steve). Without this emergency capability, I would have been sunk.

OK – so a wireless sharing strategy is not technically free wireless for all. Many people would still be paying for their connections. But people who would pay for internet access anyway can help bridge the digital divide, even if that divide is caused not by socioeconomic differences, but spatial differences – like one person just being away from their home turf for a little while. The big loser here would be the service providers (because a group of neighbors could even negotiate to split the cost of monthly service). But what’s more important – broadening access to information, or padding the profit margins? Of course the answer to this question is relative, but in an atmosphere of economic crisis, now is the time to start brainstorming solutions in terms of non-traditional variables other than money.

Today’s Washington Post includes an article on “How We Can Restore Confidence” in our economy. Confidence, after all, is one of the energetic drivers of the economy – without it, spending grinds to a halt, and the delicate equilibrium of economic flow is jeopardized. The author, Charles T. Munger, reflects on the reasons for the meltdown:

Many contributors to our over-the-top boom, which led to the gross bust, are known. They include insufficient controls over morality and prudence in banks and investment banks; undesirable conduct among investment banks; greatly expanded financial leverage, aided by direct or implied use of government credit; and extreme excess, sometimes amounting to fraud, in the promotion of consumer credit. Unsound accounting was widespread.

How did we, as a society, collectively allow these things to happen? Because many people were motivated by the huge profit potentials associated with real estate speculation, new financial instruments, and expanded financial leverage. This motivation towards self-interest, according to sociotechnical researcher Brian Whitworth of Massey University in New Zealand, tends to destabilize society by breaking down institutions and other systems intended to promote social order.In “A Social Environment Model of Socio-Technical Performance” he explains why [with my annotations in brackets]:

“While traditional technology like word processing supports individual competence, socio-technical systems support some sort of community synergy and have defenses against anti-social defection” [that is, acting against the interests of the group in a detrimental way (e.g. violation of human dignity, theft, cheating)]. “The social environment model suggests that people in society recognize both [social good and self-interest], and [tend to]combine them by anchoring one and applying the other. Anchoring social good then applying self-interest explains the highly profitable market trade systems of the last century, where individuals seek profit under social good laws. However contented individuals could anchor individual good, and then seek community benefit [through their positive, pro-social, individual contributions; Whitworth suggests that systems like online troubleshooting boards exemplify this approach because individuals have no incentive other than "good citizenship" to help others]. The latter is proposed to underlie the surprising successes of socio-technical systems.“

“Anchoring social good” is an intended outcome of public policy, which seeks to curb acts against society by instituting punishments. “Anchoring individual good” and seeking to apply one’s personal motivations for the greater good is a defining characteristic of successful socio-technical systems (like Amazon and eBay). The latter is aided by effective community policing where people take it upon themselves to enforce the rules of “good citizenship”.

This leads me to ask: what’s the socio-technically inspired public policy equivalent that might help us rectify the global financial crisis? I don’t have any good answers, but I think this research provides an interesting backdrop to analyze the situation against.

President-Elect Obama has hired a quality manager, and her name is Nancy Killefer. She is the newly appointed “Chief Performance Officer” whose mandate is to manage budget reforms while eliminating waste in government processes, ultimately making it more effective. An MIT & McKinsey alum, Time calls her the “first official waste watchdog.”

From the Washington Post:

“We can no longer afford to sustain the old ways when we know there are new and more efficient ways of getting the job done,” Obama said during a news conference this morning at his transition office. “Even in good times, Washington can’t afford to continue these bad practices. In bad times, it’s absolutely imperative that Washington stop them and restore confidence that our government is on the side of taxpayers and everyday Americans.”

This is a fantastic indication of our new administration’s commitment to quality, and its recognition that the current economic crises can only be solved by fiscal pragmatism and solid foundations.

Regardless of what happens next, I am pleased to see that our new administration’s attitude is so positive:

As he named Killefer, Obama promised to scour the federal budget to eliminate what doesn’t work and improve what does to “put government on the side of taxpayers.” He said: “We can no longer afford to sustain the old ways when we know there are new and more efficient ways to getting the job done.”

Nancy, you should join ASQ (if you’re not already a part of the organization). There are 100,000+ of us, more or less, that not only support you but want to help you develop a high-performance government. We come from all industries, are adept at process improvement at creative solutions for increasing efficiency, and can be effective advocates for your mission. Let us know how to help!

Why are Ford, Chrysler and GM in trouble? Can a financial bailout help? In late 2007, I wrote a 7,000 word article examining the ups and downs of the U.S. auto industry. Using a historical analysis of high-level metrics and examining the evolution of quality perception and quality improvement in the auto industry, I show that a financial crisis could actually be detected a year ago.

Citation Radziwill, N.M. (2008). The Role of Quality in the Decline of the U.S. Automotive Industry. Unpublished manuscript, retrieved on Month DD, YYYY from http://qualityandinnovation.files.wordpress.com/2008/11/radziwill_qualitydeclineusautoind.docDownload the report by clicking on the title; contact me if you would like to run this in your magazine or journal. Abstract In 2007, in response to disappointing market shares over the previous few years, General Motors (GM) launched an ad campaign to convince consumers that the quality of its vehicles was comparable to foreign manufacturers in order to catalyze sales and grow market share. This situation was not unprecedented. In 1982, the National Academies recognized a similar crisis and launched a study to investigate why it occurred. What quality-related root causes have historically led to deteriorating conditions within the U.S. automotive industry? How can auto manufacturers and U.S. policymakers use this information to strengthen this sector of the economy in the future? An analysis of the economic, regulatory, and financial impacts of quality is used to identify the points in time at which quality-related causes led to a downturn in the U.S. automotive industry. The results are used to gauge the managerial implications that could avert such events. Excerpt from Conclusions What can manufacturers do to prevent quality-related downturns within an industry? Based on the analysis of this case in automotive manufacturing, there is no substitute, first and foremost, for effective financial management. Ensuring positive cash flows and profitability means that assets will be available for investing in new initiatives that improve quality, or for the marketing efforts that will reveal and promote a quality reputation. According to the ACSI’s most recent ten-year report, U.S. manufacturers continue to compete on price while foreign manufacturers continue to compete on quality. Though some argue that quality is becoming competitively neutral (Harbour, 2006), there are clear lessons from history that this focus erodes market share and challenges productivity over the long term. Although U.S. automakers are now as efficient as any other manufacturers in the world (Warner, 2005), and quality levels are competitive, the financial crisis may be so severe that the industry could require strong federal support, and potentially intervention, to fully recover.

Here are some additional perspectives from other blogs:

• What options are on the table
• Why oversupply is an issue
• How different groups view the options
• And my personal favorite… Innovation is the Key in Times of Gloom: A Check on the Auto Industry