RE: Misconceptions about Deming

[Mark Delaney <markd@microen.com>]

About 18 months ago I read an interview in a financial magazine with an
executive at a dot com startup. The interviewer asked "How will you become
profitable"? The executive replied, (not quite this whimsically but
essentially), "Wall Street isn't valuing dot com stocks on profitability.
They are valued based on a multiple of gross revenue and based on revenue
growth rates. So we are working like mad fiends to grow revenue as fast as
we possibly can. We don't have time to worry about anything else". 

The horrible thing is that the executive was 100% correct in her appraisal
of Wall Street. If the management team could 1) grow revenue fast enough and
2) unload their ownership stake before Wall Street changed the rules, they
stood a very good chance of retiring young as multi-millionaires. God help
whoever owns the company now, as Wall Street asks "How will you become
profitable"? The aim of the system was not profitability, the business
systems and financial controls to sustain extreme growth were not in place,
and the many companies built this way are going bankrupt, with significant
harm to investors, employees, suppliers, and customers.

I think that this is an "aim of the system" issue. Executives need to pay
attention to the performance of the company's stock. But when the
performance of the stock becomes the aim of the system bad things happen.
Wall Street thinks that the aim of a company is to grow the stock. There are
voices in America that have spent the last 10 years asserting that it is
immoral for a company to have any aim other than growing the stock.

What is the company's reason for existence? What is the aim of the system?
Companies that answer this question better than Wall Street does may not be
the darling of the moment but they are more likely to be in business 25
years from now. They are more likely to be a good place to work too. 

For a 100% different take on the aim of a company, look at the "Corporate
Principle" and the "Character of Mitutoyo" links from
http://www.mitutoyo.co.jp/eng/mkge/index.html. These set forth the founding
principles of a privately held world-class Japanese precision measuring
instrument manufacturer.  

Ask yourself how executives holding these principles would vary in their
actions from the executive sketched above. Is it an accident that this
company is consistently profitable, grows steadily at a sustainable rate,
has dominant share in critical markets, and has weathered 65 years of
profoundly turbulent financial environment? (e.g. the Great Depression,
World War II, the rebuilding of Japan, the oil crisis of the 70's, the rise
and fall of the Nikkei, yen shock, etc.) I am not asserting that this is a
Deming-oriented company. Only that it shows a strongly held, strikingly
different, much longer-term "aim of the system" as compared to the more
usual aim "Stock price uber alles. This quarter."

P.S. - I'm not quite sure where the misconception about Deming is in this
topic. Is this topic an assertion that Deming had a misconception about the
world? Or that the world at large has a misconception about Deming?


Best regards,
   Mark Delaney

(My opinions are entirely my own. They do not reflect the opinions of my
employer, a wholly owned subsidiary of Mitutoyo).