In this module, we will look at the history of what is known as continuous improvement initiatives. The idea of continuous improvement, actually is a very old idea and people have been trying to improve on processes for many years. One of the interesting studies about improvement, was a study of chess players by Herbert Simon and William Chase who studied chess grandmasters, and said that they would estimate very roughly that a master has spent perhaps 10,000 to 50,000 hours staring at chess positions. The upshot of this study was that for tasks involving extreme cognitive complexity, it often takes many years of practice before you can really get good at it. And it's not simply practice, but learning as you practice and improving on your performance as you study the subject. This was sort of crystallized as the 10,000 hour rule by Malcolm Gladwell in his book "The Outliers". Now there have been a number of criticisms of this, but the inherent idea is that if you have cognitive complexity and you have to be able to do tasks that are very complex, then you need to be able to perfect small parts of it so that when you have to do the whole thing together, you have mastered every little bit of it. If that's true for cognitive processes of the brain, let's think about what happens when you look at the processes that we have to study when we look at manufacturing processes or service processes. While there is a cockpit you aspect to many of the tasks that are done, overall such processes tend to be relatively complex. And given that they are complex, it makes sense that studying this processes and figuring out ways to improve parts of the process should lead to improvement in overall performance. One of the earliest people to study this kind of improvements, was Frederick Taylor in the early parts of the 20th century and then that was followed by Frank and Lillian Gilbert who are known for their efficiency studies. Our story though starts with Edward Deming. Edward Deming was a statistician and he worked for the US government for many years and found that many of the ideas that he was championing, based on the work of assured in quality control, were often falling on deaf ears. So he went to Japan and met a receptive audience in Japan. He is known as the father of Japan's post-war industrial revival. And Deming is famous for his work in quality control, and in a different lesson we will talk about that. He's also famous for what is known as Deming's chain reaction, and the idea here essentially was that most people looked at building quality as an expense. So people used to say, "Well, that's going to mean I have hired more inspectors et cetera " And Deming came back and said, "Listen, if you improve quality, your costs will actually decrease because there's less rework that are less rejections. Your customers are happy because you reduce rework and because people have to not worry about snags in the next steps of the process. Your productivity actually improves. If your productivity improves, then your cost decrease. You become more competitive. You become more competitive, you can sell more. If you sell more, you get to stay in business and if you stay in business, you get to create more jobs. So there's a virtuous cycle associated with improving quality." Deming is also famous for his 14 principles of management which we won't discuss in this lecture. Now the other thing that Deming came up with, is what he called the system of profound knowledge. Now obviously, all knowledge is good, but when he talks about system of profound knowledge, he lists four elements of understanding a process that allows us to improve the process. The first one is appreciation of the process as a system. Realizing that different parts of the process work with one another, interact with one another and have feedback loops that can cause either good or bad outcomes to be realized. The second thing he talked about in his system of profound knowledge is that, we have to understand the fact that all processes, all machines, all humans have a certain amount of variation. And understanding the sources of this variation is important so that we can try and make our design processes so that this variation can be minimized. Given that you have to make some changes so that variation can be minimized, we have to think about how is change implemented. That there is a commitment to this change. What does it do to the line worker who has to actually make the change in their behavior? So there's a whole psychology of change that we should be concerned about. Then finally, he talked about what he called the theory of knowledge. Now it's one thing to make small adjustments here and there, but if you don't have a broad theory of why you're making this changes, then those changes, the small changes that you make do not actually take you towards the goal that you really want and maybe you may not even have a particular goal. So the idea of theory of knowledge is that essentially as you study a process, you have to have a theory of why things work and once you have an idea of why things work, then you can make the changes so that you can actually achieve your goals. So the theory of knowledge essentially leads to what is called the PDCA cycle. This is sometimes known as the Deming Cycle although it originally was called the Shewhart Cycle, Shewhart was a predecessor of Deming who did a lot of work in quality control. So there are this whole areas of study called The Shewhart Control Charts which were studies in quality control. The PDCA cycle has four components; plan, do, check, and act. Now for someone who has done any kind of scientific experiment, this should seem obvious. That you plan an experiment, you do the experiment, you check the results and then you see if those results can be implemented. More broadly. But thinking of this not only in terms of scientific experiments but in terms of applying in day-to-day processes, was somewhat revolutionary. So, the idea is, in the Plan phase, we study the current process. We look for possible improvements that can be made. How would we know that we've actually made improvements? So, what do we measure? Who will make the changes? So, this is the planning phase of the PDCA cycle. Next, we go and implement the change. This is where we test whether our changes, if implemented, what would have to be done to implement them. Then we check the results. After we make the change, did we get the expected results? If we did, then we want to go ahead and act and fully implemented so that it is sustainable over a long period of time. If it didn't succeed however, we have to go back to our plan, think of the theory that we have and see if that theory needs to be updated so that we can go through this loop again. If you successfully go through the PDCA cycle, then we've created an improvement and we allow that improvement to stabilize. So, the idea is, we start out with some baseline, we figure out what are processes, we figure out what changes need to be made, we test those changes, we check if the test that we've just done has been successful. If it has been, we've now improved the process, we are now at the next level. Soon as we get to the next level, we start the process again. So, we stair step up our performance slope and we go from one base baseline to the next baseline, to the next base line, at each point improving our process. The PDCA cycle was something that was incorporated at Toyota. And in the Toyota production system, which was by the way revolutionary in terms of manufacturing, the whole idea is the elimination of waste. Taiichi Ohno, one of the industrial engineers at Toyota Production System, realized that Toyota's manufacturing was terribly inefficient. So, Taiichi Ohno started looking at ways to improve their production systems. So, he created what's called the Toyota Production System. Shigeo Shingo, another leading name associated with the Toyota Production System, was an industrial engineer and a consultant who started looking at some of the suppliers for Toyota and at Toyota, and started teaching some of the methods of the Toyota Production System. As he did that, he started contributing to some of the elements of the Toyota Production System. So, one could say that Shingo is responsible for popularizing TPS in Japan. Then some of his writings were translated into English, and then that became lean management in the United States. On a different track, there is something called the Six-Sigma methodology, and this originated with Motorola in the 1980s. Motorola famously had terrible quality in those days. They used to make televisions and then they sold their plan to a Japanese company, Quasar. When Quasar took over the plant with the same equipment and the same people, they improved the quality dramatically so that they had only about five percent of the defects that Motorola had with all the same processes, the same technology and the same people. This was sort of a wake-up call for Motorola because that clearly said that they were doing something wrong. There was an engineer by the name of Bill Smith at Motorola, who started looking at the defects in the products as they were being manufactured in Motorola's plants. And what he found is that products that were defective and were fixed along the production process were the ones that mostly failed when they went out in the field. So, the whole process of fixing defective products while they were in the plant actually lead to bad outcomes for the customers and gave Motorola a bad name. So, this is where the idea of improving quality started. So, Bill Smith along with Michael Harry who started the Six-Sigma Institute at Motorola, are credited as co-founders of the Six-Sigma methodology. In this methodology, there is an application of rigorous statistical methods to improve quality. Now, if it was only limited to Motorola, that would be one thing but once the success at Motorola became visible to other companies, more and more companies decided to adopt this methodology. In fact, General Electric under Jack Welch, decided to make it a corporate wide initiative in 1995 at which point it got national prominence and has since been a go-to methodology for continuous improvement. There have been other initiatives along these lines other than Six-Sigma and Lean or Toyota Production System. In the early 50s, there was a initiative called Total Quality Management. In total quality management, we're concerned about getting employees involved in the quality process, having an organizational dedication to quality, and so on. A second initiate worth noting is what's called business process re-engineering. In this, most business processes are to be viewed as that as processes, so that they have a number of steps that are followed sequentially. Then the idea is to look at these processes and realize that many of the steps in this process are actually redundant and one could do away with many of them. So, this became business process re-engineering. In the 90s this was quite a important initiative and a lot of businesses actually restructured the way they did their things because of this initiative. For example, the fact that an insurance company which would take several weeks to pay a claim could do it within 15 minutes because of re-engineering their business process with tremendous productivity gains in that industry. Lastly, one other initiative we should mention is the theory of constraints. This was something started by Eliyahu Goldratt, and Goldratt came up with this idea in a book called The Goal. If you've never read this book, this is a great book to read. And in The Goal, Goldratt says that every business has a goal. Providing a service, generating value for shareholders, whatever that goal is. Anything that gets in the way of reaching that goal is a constraint, and the job of a business should be to focus exclusively on the constraints, to try and figure out a way to remove these constraints. Now, any other activity that does not work on reviewing these constraints, he claims is not really profitable. Now, obviously, if you remove one constraint something else can be a constraint and so the idea is that you go and work on that other constraint. So, that was the theory of constraints and it had quite a bit of success especially in manufacturing processes. So, this is in summary, some of the continuous improvement initiatives that have been developed over the years. In our lectures, we will focus more on two of them. We will look at Toyota Production System or Lean Management, as it's called in the United States, and we'll look at Six-Sigma methodology.
