NOTE: This article is still being re-constructed because of the move from MSN
From: Anthony (Original Message) Sent: 11/23/2001 2:40 PM
Defect Methodologies Hamper Industry.
Some businessmen are paying for and perpetuating the destruction of their very own businesses. This article addresses how and why Motorola's Six Sigma and Andersen's Method/1 are destroying both innovation and the division of labor at GE, Allied Signal, Texas Instruments and American Express respectively. The article provides the critical principles of laissez faire Capitalism necessary for businessmen to correct that problem and in doing so increase the productivity and profits necessary for their very survival.
"Think how absurd it would be in virtually any industry to try to make money today by producing with the [alleged] most advanced and the [so called] most profitable technology of 1900, 1940, or even 1980, and not bothering [or being able] to ADAPT to the changes that have taken place since then." #1 [EMPHASIS ADDED.]
It is not hard for most businessmen to understand that trying to make money in such a way is a prescription for disaster, under any circumstances.
However, what is not known and understood by many businessmen, is that this is the very same thing that they are unwittingly paying for--and perpetuating and suffering the consequences of--when they accept, adopt and practice Motorola's Six Sigma or Andersen's Method/1 methodologies.
As a consequence of their failure to identify and fully understand the causes and implications of this problem, businessmen end up compromising the very processes that made them successful in the first place, i.e. they end up compromising their ability to continuously increase production in advance of their competitors.
How and why these methodologies end up hampering and ultimately destroying the companies that adopt and practice them, is provided in the body of this article, along with the antidote to this billion dollar a year problem. But first--in order to grasp the significance of this problem--let’s take a look at an industry giant, who came close to seeing through the allure of one of these methodologies, but nevertheless succumbed, and with disastrous results.
General Electric (GE) accepted Six Sigma as the "most advanced and most profitable" quality process system in the world, because--like most businesses that come in contact with Six Sigma--GE was unable to refute the recommendations, practices and claims of Six Sigma and its prodigious adherents: Motorola, Allied Signal and Texas Instruments.
Those businesses that come into contact with Six Sigma usually end up claiming that Six Sigma will increase--not destroy--their ability to produce, respond to, and meet their customers needs.
But GE was later to discover that these were mistaken or false claims and that GE’s initial reservations regarding Six Sigma's incongruence with GE's more productive and successful programs had indeed been well founded. But, GE management lacked the certainty, the conviction and the proper understanding needed to act decisively and reject the methodology.
And so, four years into practicing Six Sigma--with no expense spared, and under Six Sigma's guidance--GE, the most valuable company in the world, came to be so tied up and sidetracked with Six Sigma's bureaucracy, and short-sighted goals, that it lost sight of reality. GE had become so confined and restricted by the methodology that it was no longer free to innovate and adapt to the changes that had taken place since committing to the installation of Six Sigma four years earlier.
It is the reason why GE's customers perceived no actual change, no actual improvement and no response to their actual needs. It is the reason why GE had become so uncharacteristically unaware of its customer’s needs that it came to perceive, think and believe the exact OPPOSITE of its customers' perceptions!
And it is the reason for the following quote, made by GE's CEO Jack Welch, 4 years into the Six Sigma initiative: "These customers hear the sounds of celebration coming from within GE walls and ask, 'What's the big event, what did we miss?'" #2
Indeed GE's impairment was so complete, that it was celebrating improved customer satisfaction, improved business practices and increased savings, all without objective cause.
Consistent with that impairment, GE's and Six Sigma's rationalized solution to this untenable problem was not to terminate Six Sigma but to foist it onto the rest of GE and, to some extent, its customers!
It is a telling indictment that recently whole sections of Motorola and Allied Signal have abandoned Six Sigma, or only continue paying lip service to it. It is just as telling that they are unable to rid themselves completely of ideas that are clearly treacherous and destructive.
This is damning evidence of how insidiously destructive the Six Sigma methodology is to the businesses that practice it and the customers that deal with it. And it is damning evidence that once this methodology has its roots in a business, it is almost impossible to break its grip or to contain its growth.
But what about Andersen's Method/1? Is it also insidiously destructive? Does it also cause its adherents to loose sight of reality and thereby cause them to loose the ability to successfully INNOVATE and ADAPT to changes? Does it also have adherents and experts who swear by it in spite of its serious flaws?
First, let’s consider the integrity of the company and the people who developed Method/1. As you read the following accounts of several recent lawsuits Andersen is settling, ask yourself “What possible good or use can Andersen's methodology be to anyone, when Andersen’s OWN METHOD of dealing with reality is to fake it, to LIE, to cheat, to defraud, and to inflate financial figures.
"Securities regulators on Tuesday [June 19, 2001] fined Arthur Andersen $7 million for signing off on financial statements for Waste Management that *INFLATED* the trash hauler's income by more than $1 *BILLION* over 4 years.
"The Securities and Exchange Commission said Arthur Andersen 'knowingly or recklessly issued materially false and misleading audit reports on Waste Management' between 1992 and 1996. The SEC also sanctioned four partners at the accounting firm.
"In settling the case, Arthur Andersen did not admit or deny any wrongdoing. Nevertheless, the case is embarrassing for the firm, especially because it comes on top of $110 million Andersen agreed to pay last month to settle an accounting *FRAUD* lawsuit for the work it did for Sunbeam..." #3. *EMPHASIS ADDED*
Conning and bilking its own CUSTOMERS of large sums of money goes beyond merely being an embarrassment or being an isolated mistake or being a momentary lapse of judgment; it is the product of a profoundly destructive philosophy; a way of thinking, a methodology, that is--at its very root--at war with reality, with reason, and with the necessities of human preservation.
Just as Six Sigma's bureaucracy and short-sighted goals caused harm to GE, so too must Method/1's essentially similar bureaucracy and short-sighted goals, also cause harm to its customers, its employees and its investors.
More commitment, more money, more contractors, more time, more passion and more of the same tired, worn out clichés are not the answer. They are the warning signs that something is seriously wrong. They are the inexorable failures that come from pursuing contradictions. And since contradictions cannot be successfully implemented in reality, more controls, more resources, and more lies, are just more unnecessary and unproductive waste.
Billions of dollars of profit are wasted every year because of these methodologies. Ironically, the waste is self-inflicted by modern business companies, and indeed recommended and passed around to other companies and their customers as a necessity!
This is a damning indictment of Six Sigma and Andersen's Method/1. An indictment and a warning no industry giant, let alone smaller companies nor their customers can afford to ignore under any circumstances.
This article is written for the purpose of disabusing you of these addictive fixes and giving you the insight and the knowledge to save and protect your business and your customers from Six Sigma, Method/1 or any other high sounding but specious and fallacious methodology.
"If you cannot refute a wrong idea, you can claim that you don't need to understand it, but without the proper education, your energies and resources will be constantly drained into futile lost causes and movements." #4
An essential foundation to providing a proper education in Capitalism is the book, Capitalism: A Treatise in Economics by George Reisman.
"..[T]he most important application of economics to business and investment is that only a widespread knowledge of [the] economics [of laissez faire CAPITALISM] can assure the continued existence of the very activities of business and investment." #5
To refute and resist the allure of wrong ideas under the cover of alleged "most advanced" and alleged "most profitable" technologies, it is the economic-political system of laissez faire Capitalism that must be understood.
The study of Capitalism is the study of the production of wealth in a division of labor society.
"It is the division of labor which introduces a degree of complexity into economic life that makes necessary the existence of a special science of economics. For the division of labor entails economic phenomena existing on a scale in space and time that makes it impossible to comprehend them by means of personal observation and experience alone. Economic life under a system of division of labor can be comprehended only by means of an organized body of knowledge that proceeds by deductive reasoning from elementary principles." #6
One such principle is the "Uniformity-of-Profit-Principle". It sums up the "tendency in a free market toward the establishment of a uniform rate of profit on capital invested in all the different branches of industry." #7
In accordance with that principle "...it was not possible for [Henry] Ford to make a single improvement or a single cost reduction and stop there, because it was not long before those *INNOVATIONS* were generally adopted through out the industry and, indeed superseded. Had Ford stood pat, it would not have been long before his once profitable business was destroyed by the competition." #8 *EMPHASIS ADDED*.
From this principle it is deduced that "The operation of the tendency toward a uniform rate of profit requires that high profits be made by continuously introducing productive innovations in advance of competitors. These innovations are the BASE OF A CONTINUOUS INCREASE IN PRODUCTION, whether they take the form of [--the following three goals--],
 New and improved products,
 Reduced costs of production, or
 Correct anticipation of changes in consumer demand." #9 [EMPHASIS ADDED].
Motorola's Six Sigma and Andersen's Method/1 primary focus is NOT on integrating the principles of laissez faire Capitalism, BUT on measuring and controlling DEFECTS and costs, and as a consequence they contradict the above requirements for business profits in three major ways:
A. They destroy the power of the innovators and the division of labor.
B. They end-up shutting out and driving out all innovation and productivity.
C. They give lip service to, but contradict goals 2 and 1 and drop goal 3 altogether.
Let us now address these assertions.
Six Sigma and Method/1 claim to be, and may appear to be the most innovative means of reducing costs and introducing new and improved products and processes, in order to increase productivity and profits. But they do not, and cannot actually implement and accomplish that purpose because:
A. They destroy the power of the innovators and the division of labor.
Six Sigma and Method/1 destroy the innovator's FREEDOM to think and adapt by TYING him to thinking "collectively" inside the same narrow and confining rules as the non-innovators. This is because the methodologies do not recognize, understand nor respect the value of individual CREATIVE thinking (i.e. literally, thinking outside the box).
Joint efforts are possible and necessary to increase productivity and profits. But each person must retain control over his own responsibilities, efforts and rewards, if any meaningful incentives and effectiveness are to be preserved. Otherwise his individual efforts will become less significant and therefore, less productive. But this "downward spiral" is exactly what Six Sigma and Method/1 set in motion and perpetuate by restricting and confining the innovator's responsibilities, efforts and rewards to rules designed primarily to command and control the business's non-innovative work-force. Such "collectivized" thinking compromises the innovator's freedom to think, create and adapt. #10
In the name of fostering cooperation and group productivity, Six Sigma and Method/1 foster irresponsibility--i.e. conformance, imitation and dependence on pedantic rules and command-control structures--that ends up destroying any chance for productive individual creative work and thus any chance of its derivative and corollary: productive cooperation.
Individual creative thinking is disparaged by Six Sigma and Method/1 as too abstract and not measurable and thus unreliable and flawed. That is why these methodologies aim their customers towards control and regulation, and not openness and informality. There is clearly a distrust of--and an antipathy towards--reason, logic, and creativity.
Hence, Six Sigma's and Method/1's FOCUS is on paperwork instead of imagination, measurement and surveys, instead of reason and logic, and fixing defects instead of facilitating creativity.
B. They end-up shutting out and driving out all innovation and productivity.
Just as good money is driven out by bad, and just as Work-[IT]-Out is being driven out of GE by Six Sigma, so innovation and its requirements come to be driven out by focusing on Six Sigma's and Method/1's short sighted rules.
By focusing on defect and cost containment these methodologies end up opposing and stifling any significant innovation--and thus continuous increases in production and profitability--because no up-front benefit can be foreseen or measured by the so-called experts of the time; and because defect and cost containment ARE NOT the causes of quality and production. The UNHAMPERED INNOVATOR is the primary cause of quality and production. As a consequence, such long-term considerations as the following are and would have been under estimated and over ruled--as frivolous and fanciful--by Six Sigma's and Method/1's own accounting.
"It must be stressed that man's desire for novelty and variety stands in the service of his life. The principle is very similar to that of the pursuit of scientific knowledge, where the motive is curiosity and the effect is all manner of practical applications that could not have been *FORESEEN* in advance. In just this way people originally desired automobiles not as a practical means of transportation, but as an *OBJECT OF AMUSEMENT*. Yet this *DESIRE* led to the growth of the automobile industry and to the transformation of the economic system. A similar course of development occurred in the case of electric light and power, and television sets, and now seems to be under way in the case of home and personal computers." #11 *EMPHASIS ADDED*
Six Sigma and Method/1 appear to be total and complete solutions until their contradictions are uncovered and brought to light.
C. They give lip service to, but contradict goals 2 and 1 and drop goal 3 altogether.
Restricting, misallocating, and squandering the thinking, talent, time and productivity of the innovator--i.e. the very source of productivity and profit--can hardly be justified as a reduction in cost of production. It is a loss--a WASTE--not a profit. Thus, Six Sigma and Method/1 can only PRETEND to innovate and reduce costs of production, i.e. they contradict goal  above, which can be expanded thusly:
"Reducing the costs of production means, for the most part, that one [--the imaginative and self reliant innovator--] finds a way to produce the same amount of a good with less labor. This acts to increase production because it makes labor available to produce more of this good or more of other goods, somewhere else in the economic system..."
"Even if a saving in the quantity of labor is not involved in a cost reduction, the ability to produce something with a less costly material, or with less costly labor for that matter--say, unskilled labor in place of skilled labor--still brings about a net increase in total production. What happens in these cases is that the more costly material or labor is released to expand the production of something else which is comparatively important...."
"The principle here is perhaps best illustrated by the case of employing nurses and other aids for many of the tasks that would otherwise have to be performed by doctors. What is gained is the added work that can only be performed by doctors and which otherwise would have been impossible for lack of availability of doctors' time... " #12
But the very OPPOSITE occurs when using Six Sigma and Method/1. The doctors (or their industrial innovator equivalents) end up being confined and reduced to doing what should be the aides work! They are leveled down to the lowest common denominator by these methodologies! Any apparent reduction in costs or improvement to the business has to be superficial and insignificant both absolutely and relative to the improvements that would have been possible, had the doctors or innovators NOT been hampered.
As a corollary of the above, any so-called Six Sigma or Method/1 "improvements"--made by the hampered innovator--come to be compromised more and more, as the methodologies continue to be practiced, enforced and established. These continuously compromised and diminished improvements--indeed the destruction of the very requirements of innovation--can hardly be justified as "New and improved products" or processes. Thus, Six Sigma and Method/1 can only PRETEND to innovate and introduce new and/or improved products and processes, i.e. they contradict goal .
Goal  expanded: "...t is probably self evident that the introduction of new and/or improved products [--by talented, creative and imaginative innovators--] constitutes an increase in production or is a source of an increase in production. One has only to think of such cases as the automobile replacing the horse and buggy, or the automobile with the self-starter replacing the hand-cranked automobile, or such cases as the tractor bringing about a vast increase in the production of agricultural products, or the electric motor bringing about a vast increase of all kinds of manufactured goods..." #13
ASK YOURSELF how much talent, creativity and imagination is required to take and process surveys; to measure and control defects as causes critical to quality; to use statistical tools or multiple choice forms to identify variables that cause defects; to confirm those variables by measuring their effects on quality; to modify processes to stay within acceptable ranges; to use statistical process controls, or check lists, to ensure compliance of the modified processes; and to plan, document, report and sign off every step and every phase.
It takes no talent, no creativity and no imagination to practice Six Sigma's or Method/1's DEFECT controls and measurements. It does require conformity, passivity, and imitation. These are the very OPPOSITE REQUIREMENTS necessary to accomplish goal , i.e. NEW and improved products.
It is no wonder that Jack Welch worried that Six Sigma was INCONSISTENT with his business strategies, that it was too centrally managed; that it seemed too BUREAUCRATIC--with its reporting and standards nomenclature--and that it called for overly specific agreed-upon measures. In short, that it simply didn't feel like a GE program should. #14
In contrast highly productive GE programs like Work-[It]-Out deliberately broke down bureaucratic boundaries and encouraged openness. #14
"Work-[It]-Out embraced all of Welch's most important goals: openness, informality, boundaryless, high involvement, self-confidence, productivity, creating a learning culture." #15
"Where Work-[It]-Out had been designed to eliminate reports, approvals, meetings and measures, Six Sigma seemed to be putting them back in. 'I don't know that its us' he [Jack Welch] told Crotonville's Steve Kerr." #16
Similar boondoggles were witnessed and experienced by the authors of this article regarding Andersen's Method/1 methodology as practiced at American Express.
Six Sigma and Method/1 methodologies drop the essential requirements of continuously introducing productive innovations in advance of the businesses’ competitors, because they do not integrate the principles of laissez faire Capitalism.
By focusing the business exclusively on DEFECTS and cost-containment as causes critical to quality, Six Sigma and Method/1 mask and thereby exclude the broader context, which is the correct anticipation of consumer demand, i.e. goal .
Goal  expanded: "The correct anticipation of changes in consumer demand [--by farsighted and resourceful innovators--] is also a necessary part of the process of increasing production. To understand this point, it must be realized that the increases in production are one of the most important causes of wide-ranging changes in the pattern of consumer spending. For example, the steady improvements in agriculture and the consequent drop in the proportion of people's income that has had to be tied up in buying food has made possible a continuously growing demand for the whole range of industrial goods. Similarly, the introduction and development of the automobile brought about far-reaching shifts in demand: it made possible the development of the suburbs and a whole host of new businesses from gas stations to motels; expanded the demand for other businesses, such as ski resorts; reduced the demand for passenger railroads and horses; and virtually destroyed the businesses of buggymaking and blacksmithing. Every improvement in production exercises a similar, if less dramatic, effect on the demand of other goods.
In order for these shifts in demand to be accompanied by corresponding shifts in production, it is necessary for wide-ranging changes in the investment of capital to occur. Thus, to continue with examples of agriculture and the automobile, capital had to be diverted from agriculture to industry, from cities to suburbs, from railroads, horse breeding, buggy making, and blacksmithing, to auto making, gas stations, motels, and ski resorts. To the extent that the appropriate shifts of capital did not occur, or occurred with undue delay, the benefit from the improvement in production was lost. For example . . . to the extent that capital would not have been shifted rapidly enough out of buggy making and horse breeding, the benefits from the automobile would have been held down: capital would have been *WASTED* in buggy making and horse breeding which could have been employed with infinitely greater benefit in any of the new expanding industries brought about by the automobile. In all such cases, to fail to make the appropriate shifts of capital is to *LOSE SOME OR ALL THE BENEFIT OF THE IMPROVEMENT IN PRODUCTION*. For this reason the correct anticipation of changes in consumer demand [--by resourceful and farsighted innovators--] is an integral part of the process of increasing production." #17 [*EMPHASIS ADDED*]
"So what?" you may be thinking. The business can just return to its previous practice of addressing these problems without using these methodologies.
But this assumes that the innovators still have the capability to ADAPT, a capability that they had prior to accepting and practicing the methodology. But they don’t!
Just as good money is driven out by bad, so good principles--the principles of laissez faire Capitalism and the capabilities that come with them--are driven out of the business by Six Sigma's and Method/1's short sighted rules.
These issues are precisely what the methodologies mask and obfuscate. Like all that is destructive, the methodologies must be confused and equated with "the good" in order to be accepted and practiced. However, what alleged good and ephemeral profit Six Sigma and Method/1 provide--in the short term--compared to what they achieve--in the long term--can be summed up as the "folly and stupidity of a farmer consuming his seed corn".
As a result of failing to integrate the principles of laissez faire Capitalism, Six Sigma and Method/1 can only pretend to reduce costs, pretend to introduce new and improved products, pretend to correctly anticipate changes in consumer demand and pretend to promote economies of scale through the division of labor.
We are here to offer a solution to the problems enumerated in this article!
Our experience is in designing and creating innovations and simplified systems, NOT creating, selling and perpetuating boondoggles.
We have developed two alternative methodologies: "Progress by Incremental Improvement and Prototyping" (PIIP) and "Reducing Red tape and Internal Paperwork" (RRIP), both of which integrate the principles of laissez faire Capitalism.
RRIP as it's name implies, aims at undoing the damage, and removing the Six Sigma, Method/1 mentality, from organizations that have done this to themselves.
PIIP focuses on what should have been used in the first place.
For more details on PIIP and RRIP, please contact us at
AnthonyShelley@yahoo.com or DennisLeeWilson@yahoo.com
Anthony Shelley and Dennis Wilson.
Copyright May-2001. All rights reserved to the authors. May be reproduced if credit is given to the authors.
#1. Capitalism: A Treatise in Economics by George Reisman, 176.
#2 Get Better or Get Beaten by Robert Slater, quote of Jack Welch, 162.
#3. USA Today, Wednesday, June 20, 2001, Money Section B, 3b.
#4. Dennis Wilson. Refer also to the lead article in Philosophy: Who Needs It by Ayn Rand.
#5. Capitalism: A Treatise in Economics by George Reisman, 18.
#6. Capitalism: A Treatise in Economics by George Reisman, 15.
#7. Capitalism: A Treatise in Economics by George Reisman, 172.
#8. Capitalism: A Treatise in Economics by George Reisman, 176.
#9. Capitalism: A Treatise in Economics by George Reisman, 180.
#10. Paraphrased from Journals of Ayn Rand and How I Found Freedom in an UnFree World by Harry Browne
#11. Capitalism: A treatise on Economics by George Reisman, 44.
#12. Capitalism: A treatise on Economics by George Reisman, 178.
#13. Capitalism: A treatise on Economics by George Reisman, 178.
#14. Get Better or Get Beaten by Robert Slater, paraphrased from quotes of Jack Welch CEO of GE, 145.
#15. Get Better or Get Beaten by Robert Slater, quote of Jack Welch, 139.
#16. Get Better or Get Beaten by Robert Slater, quote of Jack Welch, 141.
#17. Capitalism: A treatise on Economics by George Reisman, 179.