The 10 Steps of the Decalogue
What follows is a brief explanation of the 10 Steps of the Decalogue.
Step 1: Establishing the goal of the system, the units of measurements, and the operational measurement
Without a goal, there is no system; and without clarity on what to measure in the system and how to measure it, talking about a goal becomes lip service. GAAP accounting utilized to support managerial decisions is the enemy number one of productivity. EBIT, EBITDA, EPS, and any form of GAAP-derived measurements totally miss the point of what a company should strive for. If the goal of a company is connected in any way with making money, then all we need to know is:
What comes in (Sales);
What goes out to purchase materials and services that go into the products we sell (TVC, Totally Variable Costs);
What we need to make the system function (fixed costs + investments), Operating Expenses (OE);
The inventory (I ) we need to keep in the system to ensure that we always have enough “material” to produce and ship.
Step 2: Understand the system (draw the interdependencies)
If we do not know who does what, what the inputs and outputs are, and how everybody’s work is connected, then we are not managing. As we have mentioned, Dr. Deming declared that “Business schools teach you how to raid a company, not how to manage it.” It is disconcerting to discover how little we know about our system until we have a clear picture of how our interdependencies are laid out and how neglected by top management this issue is. Through mapping out all the main processes of an organization, Step Two provides the foundational elements of understanding that will enable the building of a truly effective Quality System.
Step 3: Make the system stable (understand variation and its impact on the network)
Dr. Deming used to say that if he had to reduce his message to Management to just a few words, he would say that their job is all about reducing variation. Dr. Deming’s unrivaled contribution to the science of management comes from having understood the importance (and all the implications) of a body of statistical studies developed by Dr. Walter Shewhart of Bell laboratories in the 1920s. Shewhart found out that any process is affected by variation, which is enemy number one of Quality and reliability; however, this variation can be attributed to either common causes or special ones. Distinguishing “noise” from “signal” was then critical to devising actions aimed at managing this variation. Dr. Shewhart developed an important part of the Theory of Variation known as Statistical Process Control (SPC) and a very useful mechanism for measuring variation called a Control Chart (also known as Process Behavior Chart). His work was foundational for the improvement of productivity, first at Bell and then in a myriad of organizations countrywide, and certainly served as a springboard for the gigantic work of Dr. Deming.
Control charts capture the most fundamental feature of the work of individuals and their interaction within an organization, the variation associated with processes. In building a systemic organization based on the Decalogue, SPC has a central role.
Step 4: Build the system around the constraint (subordinate the organization to the constraint)
The new kind of organization that is based on managing variation and constraints is a network of interdependent processes with one common goal where we have achieved a good level of statistical predictability. It can be successfully managed, but the question is, how? Dr. Goldratt’s main contribution to the Theory of Management has been to point out that any system is limited toward its goal by very few elements, the constraints. If we identify them, we can manage them following the steps of focusing that he developed. The Decalogue, leveraging the intrinsic stability of a Deming-based system, suggests that the constraint can be “chosen” (one constraint) instead of being identified. In other words, we can always decide which constraint it is strategically more convenient to focus on and build the system accordingly.
Step 5: Manage the constraint (protect and control the system through Buffer Management)
The performance of this system is ensured by its predictability but we need a mechanism to protect it and control it. This is provided by the buffer and by its management. What is a buffer? Individual processes exhibit variation; two or more together do too, let’s call it covariance. The effect of covariance is a cumulated variation that can result in any sort of combination of these variances. Regardless of how little individual variation the processes of the system have, we do need a mechanism to protect the most critical part of our organization, the constraint. A buffer is a quantity of time that we position in front of the constraint to protect it from the cumulative variation that the system generates. Simply put, in synchronizing the processes that deliver the output of our organization, we ensure that what has to be worked on by the constraint gets in front of it “one buffer time ahead.”
Step 6: Reduce variation of the constraint(s) and the main processes
Step Six is obviously connected to Step Five but less obviously to Step Seven. Clearly, we do understand the impact that variation has on our system and the need to reduce it but when push comes to shove, we are not prepared to continue to work on variability reduction. Why not? The answer is in our ability and desire to understand the purpose of system management.
The culturally disappointing translation of Deming’s Philosophy into a plethora of “Kaizen-like” management techniques has transformed it from a vision of the world based on innovation and wealth creation into an efficiency game. If, on top of this, we continue to view our company in “functional” terms, then reducing variation simply means reducing costs. Of course, no function would ever easily surrender to that because it would imply “cutting the budget”; hence any serious attempt to reduce variation is nipped in the bud. A relentless effort toward continuous reduction in variation can only stem from a systemic vision of our company and the understanding that only this reduction would provide the insight needed for triggering real jumps in performance. The way to link a relentless, focused, and companywide variation reduction crusade to financial performance is through the adoption of a suitable organizational structure.
Step 7: Create a suitable management/organizational structure
]At the time of publication of the book Deming and Goldratt: The Decalogue (1999), Step Seven was not clearly and comprehensively elucidated upon.
It was clear that, without a suitable structure, the realistic possibility to sell all the capacity of the constraint would be hindered by local optima considerations. In other words, the design of a suitable structure was a prerequisite for enabling the true expansion of the system. Today it is much clearer that the natural way to see the work of an organization is in terms of process and projects. In the years that followed, further research and application led to the development of the Network of Projects organizational design as a means to improve and optimize the performance of the whole system.
Step 8: Eliminate the external constraint (sell all the capacity the system has available)
When we design a system that caters for a high degree of process predictability and synchronization, where control and protection are ensured by buffers and where all the policies, behavioral, and measurement “constraints” are dealt with by an appropriate organizational structure, we do so to maximize sales. The most important part of the chain is the customer, and any company should always be designed to ever improve its ability to satisfy its customers’ verbalized and hidden needs.
Step 9: Where possible, bring the constraint inside the organization and fix it there
The Decalogue approach to management is based on process stability; indeed the most critically important part of the system is the constraint. Hence, we want to ensure maximum predictability, especially on the constraint. Clearly, when the constraint is external such predictability is more difficult to achieve. This is the reason why, whenever possible, we want to manage an internal constraint. Moreover, this is also the easiest way to make the system grow without stirring chaotic company dynamics.
Step 10: Create a continuous learning program
The possibility for a Decalogue-based management system to produce results over time rests on the ability that the organization has to continually learn what is needed to constantly improve its performance. Learning does not happen in a vacuum and cannot be based solely on individual desire. Learning and personal development must become part of the way the organization functions, and the change associated with it must become a way of life for the company.
The Decalogue is founded on the principle of continuous improvement. Not only does it employ the Plan, Do, Study, Act continuous improvement cycle designed by Deming, but the entire 10 steps embody that cycle pattern in the way they are carried out.