In our 51st Deming Lens episode, host Tripp Babbitt shares his interpretation of wide-ranging aspects and implications of Dr. Deming's System of Profound Knowledge. This month he looks at supply chain and risk management. Show Notes [00:00:14] Deming Lens – Episode 51: Pay for Performance [00:02:19] A Journey with Pay for Performance [00:03:28] The New Harmony Project [00:04:33] The Result of Collectivism [00:06:35] Analytical vs Synthetic Thinking [00:10:19] Dr. Deming and Pay for Performance [00:12:22] Pay for Performance, Collectivism and Dr. Deming     Transcript [00:00:14] In the 51st episode of the Demning lens, we'll talk about. Pay for performance. Hi, I'm Tripp Babbitt, host of the Deming Institute podcast, and this is the fifty first episode of the Deming Lens. And as I was going back and searching through some of the old episodes I've done, I noticed I hadn't done one on pay for performance. And it kind of came to the forefront of my mind when I was going through some Tic Tacs. And there's a couple of people out there that are big advocates of pay for performance as ways to keep people in their organizations, which is becoming a problem now. You know, people aren't going back to work for variety reasons. The stimming check certainly plays a role in that, working from home, people being called back to work when they had got used to being at home. There's this thing that goes around on LinkedIn about you only live once and you might as well do something that that makes you happy. And organizations these days don't seem to be making people very happy. And so these are some of the topics that I think I want to talk about with regards to pay for performance. And I actually put a whole YouTube video together on my personal YouTube channel responding to Tessa White, who goes by the name Job Doc Tessa. And she used to get some pretty good advice. But one of the pieces of advice was if you're going to keep people that you got to pay for performance.   [00:02:19] So let's talk about that, because it's been an interesting journey with regards to pay for performance and at least in my own personal journey, doing public and private seminars where we would talk about pay for performance, which was something that Dr Deming obviously advocated against. And I'd often get a lot of pushback on this. You know, when you're talking about getting rid of incentives or paying for performance at almost every public or private seminar that I did, I get some pushback either allowed during the course of the seminar or privately afterwards that asking if Dr Deming was a socialist or a communist. And I've done other episodes on this particular subject, but I'm from Indiana and in Indiana. Back in the early 1980s.   [00:03:28] There was a project called and New Harmony, Indiana, that basically advocated for collectivism, which was put together as a utopian society by a gentleman, by the British industrialists, by the name of Robert Owen from 1825 to 1827. So let's have a look, maybe a little bit over a year. And then it was dissolved in 1827 because this whole concept of social education and equality did not work well for a lot of different reasons. But the idea of a utopian society in New Harmony, Indiana, was to eliminate crime and poverty and increase health, decrease misery and increase your intelligence and happiness. And this was what this community of equality was supposed to achieve in Indiana.   [00:04:33] And but what happened over time is that people discovered that the equality that this society was advocating, that there were certain rare and very hard working people, you know, putting together the agriculture that was needed for the society or building houses or whatever, is that the hard working realize that they were earning the same as the laziest of the people in the group and that caused conflict. And then people stopped working. So food wasn't being grown and houses weren't. Their houses and buildings were being built because there was kind of a pointing fingers and blame and things of that sort. So this whole utopian society based on collectivism was didn't work out. It collapsed very quickly and. You know, when you when I'm talking about pay for performance in public and private seminars. You know, the thing I'm communicating to people is that the individual cannot be separated from the system that you work in. And what I discovered over the years is there's there's something called Dunbar's number, which is 150. When an organization grows to about 150, you you become it becomes more and more bureaucratic. And the larger it grows, the more bureaucratic that it becomes. And managing that becomes very difficult. So the larger your system is, the harder it is to separate the performance of an individual from the system that that you're working in. Now, I've seen it get really bad, anywhere from 75 to 150 employees and working with some smaller organizations.   [00:06:35] And but it's borne the pay for performance. The mindset is borne from what I referenced is analytical versus synthetic thinking. And that is that, you know, we break down the pieces in analytic and analytical thinking and we break them down all the way to the individual and say, OK, here's your goals. If you just meet your goals and everybody meets their goals, the company's going to do well. And I think if you go back to the interview I did with Paula Marshall, you'll discover that you can't separate the individual from that system and that the system is greater than the sum of its parts. So the whole concept of synthetic thinking or systems thinking gives you a different view of how your organization works. And it's not something that you can just break apart all the way down to the individual and add it up. It's exponential. And managing the interconnections in a system is where you get your largest gains. So, you know, it's been interesting from my standpoint that we have gone from this concept of Dr. Deming's ideas around pay for performance, where people were, in essence, questioning whether he was a socialist or a communist or whatever. To today we seem to have this pendulum swinging, swinging where, you know, everybody should be getting the same pay. And I you know, the things that Dr. Deming worked on from my studies and my using his system of profound knowledge are getting clarity of purpose.   [00:08:29] You know, if you if you understand your system and you understand your connection to the customer, that raises your level as a worker, understanding kind of what you do as opposed to just being kind of this cog in the system that just does its thing. And there's no benefit to doing that, but that people are paid differently based on the skills that they get. And developing those skills becomes something that the organization would want to do for its own benefit, as well as the benefit of the individual. One other thing Dr. Deming advocated is innovation and that people are participating and coming up with ideas and more and more. I've seen this huge conflict in organizations between the executives micromanaging things. And, you know, you do your work and you do it in this way, as opposed to giving more responsibility that the worker has even greater knowledge because they're actually doing the work to make their own decisions about their own work. And that management's job is to remove the barriers that create problems for the workers. And they're facilitating things, moving, moving forward. And the best organizations that I've worked with either working towards that or they're getting the knowledge to work towards that. And this is what will keep people there. Never will there be this collectivism type of mentality on the one and one side of things where, you know, everybody gets the same pay.   [00:10:19] And on the other end, where there's this pay for performance, there's Dr. Deming is proposing something very different than those two concepts to be able to make the organization better and have individuals want to be a part of that and not go to things like wanting to be an entrepreneur. Fighting, though, the work from home, you know, going to a smaller company or just staying waiting till the clock runs out on their stimming checks, these are all things that are preventing us from moving forward. Now, one thing I am getting more and more concerned about is, you know, we need these large organizations to achieve big things. You know, an individual entrepreneur has to be very fortunate. You know, there's very few Jeff Bezos of the world that start from scratch and then grow a particular company into a behemoth like Amazon. And so we need these large organizations and we need them to run well because they can achieve big things, whether it's making cars or homes or whatever it is. These are very large systems and people get lost in the shuffle in the way that things are happening today. And so they're dissatisfied. We have a whole generation of people that are really caught up and trying to do something for the greater good. But I think it gets a little bit misguided. And I believe that some of the organizations that we have today with the mindset of micromanaging people and control and incentives and pay for performance are all things that are making their systems worse.   [00:12:22] And, you know. We don't need pay for performance and we don't need collectivism, but what we do need are good systems that people want to work in on a daily basis. And so that's that's the message I wanted to communicate this month in the Deming lens is this concept of pay for performance where you can separate an individual from the system, which you can't. And the larger the system is, the harder that becomes. If you're an entrepreneur, then, yeah, pay for performance. And that's that's exactly what you get when you're an entrepreneur, you know, a company of one. But as it grows, there needs to be a better an organization built on a clarity of purpose, their connection to the customer, and that the person, no matter where they are in your organization, can understand that what the customer is looking for. And I use what's called a customer lens to be able to achieve that and innovation, the ability to share ideas that they have about the work and the way that it should be done and the ownership of that by the worker as opposed to management and executives and people of that sort. So that was it for this week. I'll talk to you again next month for the latest videos, blogs, events and information from the Dummying Institute. Be sure to go to Deming dot org.