What Would Deming Say?

[Music] hello everyone welcome to the 21 hats podcast I'm your host Lauren Feldman this week Kelly Allen a consultant who specializes in shairing the principles espoused by the late management Guru W Edwards Deming returns to the podcast for a conversation with Paul DS Jay goz and Laura Xander as you may know after World War II Deming was sent to Japan where he was largely credited with resuscitating the devastated economy he went on of course to be tremendously influential and if you read his books or scan his 14 points for management it's clear that many of his lessons are now widely accepted but not all of them for example he encouraged Business Leaders not to set production quotas not to hold people accountable at least not without first holding the process accountable and not to address employee performance and pay in the same conversation some of these issues came up in an episode that Paul Jay and Laura taped in December which is why I decided to invite k who is Chairman of the advisory Council of the W Edwards Deming Institute and has his own management consulting business to join us my goal was to see if we could figure out what Deming would tell Paul Jay and Laura and whether the three owners would be open to his suggestions spoiler alert Paul's not really buying it even in Good Times zoning and running a business can be a lonely Pursuit our hope is that these weekly conversations will it owners know they are not alone in facing challenges same thing with our daily newsletter the 21 hats Morning Report which highlights the most important news of the day for business owners and which you can subscribe to at 21h hats.com where you can also find transcripts of our podcast episodes and lots of other articles and interviews joining me this week on the podcast along with Kelly Allen our regulars Paul DS who is CEO of Paul DS cabinet makers which is based outside of Philadelphia and makes custom conference tables J Golds whose companies in Chicago include a picture frame business artist frame service and a home furnishing store Jason at home and Laura Xander who is CEO of Jimmy Bean wool a digital yarn store based in Reno Nevada and mateline TSH a yarn supplier based in Fort Worth Texas the episode is titled what would Deming [Music] say welcome everyone Jay you said something that first triggered my thinking about Demi and that is you said that the the key turning point and you're building your business years ago was the decision to put up a board in your uh Factory space where you kept track of the work being done by your picture framers and every hour someone would call out to them to see where they stood uh in terms of getting the day work done and I I I found that intriguing especially since it was so important to the development of your business business let me give you a little more there's a little more Essence to that you got to remember or maybe you don't know at all I'm not an assembly line This is Custom Framing some people of big pictures some people of little pictures it was simply a way of letting everybody know yeah if you fall asleep at your desk for three quarters of the day we're going to know as the day goes on because because every hour on the hour we're going to ask you what did you get done and all of a sudden productivity went up simply because nobody wants to scream out Lauren what do you got nothing I didn't say you better get three done in the last hour you better get two done but at least there was some ongoing noticing of what was happening and the major thing was that if there was a problem this is what would happen before I did this we get to the end of the day sometimes and production was off by 50% you go what what what went wrong oh we got some bad frames well it was too late to do anything about it at least if it's on the hour if there was a real problem you could immediately go and address the problem and and it totally it I wasn't exaggerating when I tell you it changeed my business it I I haven't had a quote unquote bad day in 30 years I used to have them whenever I'd hire a new manager after about the fourth day it was like a substitute teacher they wait and see what they could get away with and then production was slow to 50% and it it happened numerous times so Kelly any thoughts all of the folks we have here today are experienced business people who have obviously been doing so many things right and with them it's not about right or wrong it's about what useful right what has the greatest utility uh for return on time and investment Etc but the concept of pay for performance is not really in this example right we're going to get to that though you didn't set quotas say this is what you have to do to keep your job here which is another issue what Demming is is after and I'm not channeling Deming so it's not what Deming would say or do you're hearing from me based on what I know so take you know take it or leave it but it's it's the um it's the engagement with people it's working on the work together and to make sure that we're really understanding the capability of the process and so there's a pro whether it's a known documented process or not there are steps every one of those frames and every one of those things that they're doing that they learn pretty quickly and it Bec a part of uh uh their Mastery of the skill set right so they're probably working to their capability and you're not in incenting them or derating them for not meeting a quota you're trying to understand what was causing that wide variation from 100% to 50% that's huge unacceptable variation so you came up with what we call a common cause solution that everybody's a part of the system and they're all doing the same solution and unless you got some really negative feedback uh it's probably working okay do that make sense sure now I read your I read the 14 points of of the Demming process and I I can't argue with any of them except one I'm just scratching my head and I don't know that I understand it says get rid of Merit raises or something how do what is the philosophy with giving raises that's what I'd like to know they're basically two things about uh pay first of all just acept pay which is what's the marketplace are you going to pay at above or below market and then we don't want the same the same job to have huge incremental differences in pay so some people have been doing the job longer they might be faster at it they're better teachers to other people you know it's hard to know so what he's talking about there in part is pay for performance so if I have uh people that I am paying Merit pay to because of I believe their performance is better I've opened myself up for a huge number of negative unintended consequences because you only have to be wrong once and if all the other workers know that that person's cheating cutting Corners cherry-picking the easiest jobs I mean there are dozens of ways to gain the system if everybody else with the manager or owner knows uh you're wrong wrong ones and you lose your credibility and you you increase the gaming of the system because now everybody knows to get ahead that's what has to happen I believe in that podcast that I'm referring to Laura you talked about paying for performance in your factory in Dallas where pay for the people who are making yarn there is based on how much they make C can you describe how that works sure and our situation is a little bit like Jay's in that we were trying to stabilize or provide IDE some sort of clarity as to what was going on because it was a business that we had taken over so we were trying to get a measure of what our production was um and so what we did is we realized that the first step in the production is the the dying of yarn and that there were multiple components to whether or not someone was um was productive let's say and one component was how quickly they could do it so you know how many units per hour they could produce and then the other component was skill level you know there were multiple different um of kinds of dying techniques going from simple to complex so we created a matrix that was the highest paid people are the people who can do the most complex work and produce the most at the same time and then the you know the entry level is someone who you know obviously is slower and can only do the simple stuff and our goal was to communicate to all of the people there that yes being highly paid and doing the most complex is the Pinnacle but it's you're also really valuable if you can produce a tremendous amount at the simple level and or you're tremendously valuable if you can do the most complex stuff but you're not super fast and for our team there we felt like it was important to put numbers to it you know and say okay here's the salary range or here's the pay range for this job you know and if you're the slowest most simple this is kind of how much you're going to get paid you know blah blah blah and then here's kind of the Matrix so part of the reason and and we experience gaming of the system we experience you know all kinds of stuff and then we put some assumptions in place that all of this is based on an assumption of you know a certain error rate all of this is based on an assumption you know obviously that you're a good cultural fit and you know all these other kinds of things that that need to go into it um but what has been interesting we put this into place about a year ago maybe nine months ago and part of the reason that we did this was to figure out as new owners um walking into kind of a messed up situation and kind of um a culture that didn't fit with with what we wanted it to be we needed to figure out which ders were doing a good job and which ones weren't you know so we needed to put some metrics in place as that has shaken out and as you know the pay has stabilized um and we we've ended up giving you know I think an average $3 to $4 do an hour um pay raise now that we know what people are capable of one their rates the productivity increased tremendously you know as a result of creating some transparency but then what's happened now now that we kind of have a stable Benchmark um and everybody knows you know like what what Jay has everybody knows we're shooting for 12 and a half skaines per hour that's just it is what it is that's the bench Mark if you're lower than that it doesn't mean you're going to get fired but it might mean you get some more attention so that we can get you to where you need to go you know to where we need to be so we can do projections and all that kind of stuff what's interesting though is as I was reading through those 14 kind of rules deming's rules you know there was a lot of replace with leadership replace with leadership um we have now gotten to the point where we have a good solid team and we don't have to focus on those numbers quite as much because we know now with now that we have a good lead are in place we know that if everybody's working really hard they're doing a great job um you know for the most part but we can still use these numbers as a way especially when we bring somebody new in to help them understand what the pace needs to be I mean I always liken that stuff to me I was a a runner and I need to see I need to see my splits you know I need to see what my times are to be able to know if I'm doing better or not cuz you can have a day where you feel like you're working really hard but you're not being productive and then you can have a day where you feel like you're you're not on it but you end up being more productive than you realized so we think those metrics are really important yeah so it's interesting because one of the things that that Deming talks about the understanding of a cultural piece and how to help people be successful so with Jay's situation and with yours I think there are a number of things that that you share which is with the with the atttention to try to make people successful with their work with the types of jobs that both of you have some people are just not going to be skilled at they just don't have the dexterity they don't have I mean I don't know what all is involved with it they might not have the hand eye coordination the color sense I mean I don't know so that there's there are some criteria that would rule somebody out from being a good fit in that job and you mentioned some interesting things that are very diing which is what and Jay had the same thing you you can't have variation 50% in consider that you have a stable system and you can't really improve a system until you remove the things that are making it unstable and so that then you can continue to improve it in some different ways the only thing that I that I might give me pause is if you had it to do over again one of the things that I would en encourage you to look at is what is the capability of the processes processes in which people work right and there are some ways to measure that uh both with numbers and otherwise I think you figure that out over time without even realizing what you were looking for was a a metric for capability because one of the things that helps us make more money faster higher productivity and Greater Joy in work uh comes from having above average processes so that everybody can get above average results it opens up my hiring pool a lot more now again we're talking about dexterity Etc that may are some experiential pieces that may be a part of that the other key piece there that you mentioned and and obviously you have a sense of this which is complexity right there there are uh there's a lot of research that shows that other workers respect the fact that someone who has who can handle greater complexity can get paid more money so it's not really Merit pay I think in the transcript Lawrence cor the conversation was about Merit pay but what you're really talking about seems to me now that I understand it better is you're really talking about skill set complexity and maybe some additional ability when you get to an assembly line uh kind of operation or a service line kind of operation and we can talk about some examples that the moment then what you want to make sure of is that you're not blaming or rewarding workers for the output of the process because that creates tomorrow's problems today is there a company or a company that is well known today that embodies the Deming principles I love that because it allows me to open up uh a quote from D so there are there are hundreds thousands toota has gone a long way on the Deming journey and a number of other Japanese companies as well and there are a number of us organizations that use many of his teachings but here's what we're discovering so many organizations have started to adop those strategic leadership pieces even without knowing they came that they originated from Demi three of my nieces or various age groups uh will not work for organizations that do silly things that are command and control-based they won't work for organizations where there are quotas that don't make any sense or where organizations cause them to compete against their colleagues they're working for organizations that understand that collaboration is what gets people to work for us keeps people working for us and gets better results because people will share their ideas so in Deming was Demi was asked the question Dr Demi how many companies are using your uh methodology is 100% And he had really deep voice and he said n well Dr Deming uh if that's the case in a hundred years how many companies will be using your methods all that survive and that sounds like hu huus and and arrogance but he would he did the he ran the numbers and he he understood that if you're 3% today in the pond of algae in the pond every time you get a double right pretty soon it doesn't take that long to get the whole Pond we have started to see at the Deming Institute we and my own practice of my country's practice we've started to see just huge numbers of things that when Demi started talking about them in 1980 considered to be crazy what do you mean you don't hold people accountable you hold the process accountable what do you mean you don't give quots to people to make their numbers what do you mean well that is all started the seeping ways anything to do with technology companies there are few holdovers from that but employees Center mation time they set their own sick Le time their own you know attend a funeral time they do all of those things and what the research shows is they actually don't take as much time as the owners would like them to take and the owners don't want them to get burnt out can we get back to my basic question of if you don't pay people more because they are quicker or do a better job or have better skills set how are you giving raises out well I think in your situation uh if it's working for you I wouldn't I wouldn't tamper with it in most situations though Jay it doesn't work very well there's constant sabotage of other workers people don't get along which hurts productivity and it's not about skill it's not about dealing with complexity here's a typical spreadsheet of what happens with most managers so you have four workers and here's their production on day one this is actually the number of Errors number of defects they've made their production of each worker on day two day three and day four so what happens is if I'm the supervisor I end up looking at worker four on day two who got seven who was the best performance of the day praising that person rewarding that person giving him a merit increase and threatening worker number three because it's got 15 defects so take that to the next day what happens is now the worker that I praise has now gotten 13 and the best worker now is worker number one so whether it's daily weekly monthly or whatever are you talking about bonuses versus a when I hear Merit that means paying people more when they are in the long term doing a better job versus this what you're talking about to me that's not that's bonus H we typically don't refer to that as par it is a level of skill which requires a separate category of pay right that's not Merit pay Merit comes typically in most organizations Merit is used to praise reward or withheld Merit for punishment okay so that's very different so are you saying we should not have a meritocracy Singapore for example for years has been a meritocracy it works pretty well there the entire system though is geared towards that so the piece that's often missing is owners will grab leaders managers owners will grab so-called best practices and try to Cobble them together and they can make them work the question is how much energy does it take how much time does it take is that your highest and best use or is it simpler to simplify things rather than creating more complexity so I I would say that both you from a word I've heard so far both you and Jay are trying to simplify try to recognize the complexity and pay accordingly so that you don't end up in a situation where the worker who uh was great one day stabed you in the back that's what managers feel they stab me in the back the next day after I praised them so that's the other thing I sort of popped out to me about both of your stories is you've been trying to help people be successful rather than being sheriffs now if someone really cannot do the work they're unhappy and you're going to be unhappy and so why prolong we always say like our goal is to pay you more help us figure out how to pay you more yeah the only other thing I might suggest there is try to get money off the table don't always bring the focus back on money what you're trying to do is help them build skills you're trying to help them get more joy and work because usually handling more complex work is more interesting after a certain point people start to get bored so let's let's start to couch some of those discussions in around Joy in work and satisfaction in work rather than just about the money yeah hey I have some questions in what world is it okay for someone to make 17 mistakes a day and even if the best performance is five What's the total number of Cycles completed per worker who designed the system who's measuring it who's in charge of making sure the data is correct I mean you this we seem to have been dropped into the middle of a very complex way of thinking about the world that really only applies to certain kinds of work situations too and I hate to be that guy but this means nothing on my my company we always need that guy first of all it's those well you got him get ready we just don't always want him yeah so one of the things you said is who designed the system right was it the workers typically not typically not so what happened these are the kinds of things that we see I mean Paul we see this day in and day out in companies in every industry but what we see is people will take the average and that now becomes the quota where did they get their Math training it makes no sense you have to take my word for it that this is very common and so what happens is there are only three ways to get better numbers only three manipulate the numbers happens a lot manipulate the system that gives you the numbers so don't report everything or improve that's it why can't the average be the average quota I mean if you're finding on average that we're doing 10 then over a year can't we assume that it's going to be 10 well it depends on what your aim is if your aim is to try to get the number of Errors down to five or two having a quota guarantees you will never accomplish that because you don't know what the capability of that process is I mean was very careful with his words but he said uh quotas like that are a fortress against Improvement of ever really understanding what's going on and in the meantime you're praising this person for low errors punishing this person or even replacing them but the capability of the system that they're in the tools that they have the raw materials they're working with the process that's been designed the layout of the workspace the lighting dozens of inputs are causing that capability that's the voice of the process voice of the process tells you that any worker in that process is likely to pull between one and 17 errors a day that's the capability I'm probably the only one here old enough to remember Osborne computers the first laptop computer company at the end of I mean they had the market to themselves they're not around anymore because they had quotas for everything and many of them were averages but at the end of their days they were shipping empty boxes because that's when the sales people got credit for the sale and when the production facility got credit for the shipment they were shipping empty boxes and then getting on the phone and calling their customers and saying uh you're going to get 400 empty boxes what I'm good for I think part of the problem here is the three of us are Hands-On business owners and some of these examples are from huge corporations that are disconnected from a whole lot of stuff and much of the stuff that you're talking about is obvious to us because we are the Hands-On business owners and this is as much about how to get to be a big screwed up company as it is about anything and none of us are that big to get that screwed up so I and I'm in a weird business in that my defects I got a I got a pissed off customer I'm not putting widget out my defect rate quote unquote is next to nothing because if I go ahead and something goes wrong we're standing there at the pickup counter with a customer that just spent $375 and they're not going to be happy so you talk about in yourr face quality control by the nature of my business we've had to make sure that we we have people that are inspired and are dedicated to doing a good job much right off of your list I mean I do everything that's on your list because it's only thing that would work I can't I can't you know yell at them to get it to be better they have to care about what they do and um so I can't argue with anything that's on your list um I just want to hear you say because if I was the 26-year-old Jay going crazy with management didn't know what he was doing I would want someone to actually say out loud so we're not confused yes sometimes some people are not Suitor for the job and your job is to figure that out and fire them I would just like to hear someone say that out loud because I'm afraid I thought I said that at least twice no you did I'm just saying when I've go when I used to go to seminars and I used to you used to think what am I doing wrong because no one would tell you the truth and I just want the truth to be out there so Bing said the same thing good in fact there's pretty much a rule that says we will try to help you multiple times to make sure that uh we're not blaming you for a a process issue but if we're pretty sure it's you and if we've tried several times then you're not a good CR you have to go away wow then I am listening to all of the principles because I say after the third convers ation that's I think three times that's probably enough to figure out that they're not getting it so okay good I'm all in the clock is ticking and our hour is passing there are a couple of things I want to hit I want to address something that uh applies directly to Paul and I think this may get to some of the questions that he started to ask before Paul in that podcast that I was referring to earlier you talked about the problems you had in your uh Custom Manufacturing process because there a wide range of possibilities there are a lot of external factors that could have an impact on how long it takes you to do something to build something uh it affects how you price what you do it affects your ability to figure out what your um your margins are for any given uh piece that you're making Paul do I have this right could you talk about why you struggle a little bit with external factors and not knowing for sure well just to in case anybody doesn't know what we do we build custom conference tables there's huge variation in what we're actually doing on the shop floor and generally we also have somewhere between 20 and 50 jobs on our shop floor at any given time and so it's a lot of different stuff and a lot of it happening at once and it's pretty hard to apply these Concepts that were developed for assembly lines and put them into a more chaotic environment and I think that my dilemma with with these systems is plays out in a lot of different businesses that uh what people are doing all day may not be easy to measure uh the defects may not be easy to measure and that also the make or break activity that that makes the business succeed or fail may not be what you're measuring so just to go to Jay's example uh he's measuring people putting together picture frames and it may well be that the make or break activity of his business is whether the door got unlocked on time and the front door or whether the ad has a misspelling in it or whether the person who picks up the phone is a misen thrope or any number of things that are happening way off in the distance and are uh you know may or may not have an effect on what's Happening wherever you choose to focus your attention in my business we try to measure what's happening on the shop floor and the closer you look the harder it is to make any sense of it but we collected a lot of data so that we can come up with aggregate numbers and what I was saying on the on the podcast was that I have a couple of numbers that are just aggregations of performance really of the whole company so I talk to my people about Revenue goals per month because it costs more or less $350,000 a month just to run the factory so if you have revenue of 380 happiness if you have revenue of 330 bad that's really simple and so I talk to the people about here's the jobs that are coming up here's what they're worth here's where they need to go out you figure it out I'm giving you information this is what where the finish line is this is how we succeed this is how we fail and then all of those subd discussions about how our processes are happen in the context of what the overall goal is and second of all the what what we've talked about so far seems very applicable to an assembly line and not necessarily to any other situation so is that an answer to your question Lauren there's a lot there Kelly do you have any reaction to any of that I need to uh clarify it's not about I mean it works on assembly lines but uh most of the organizations using this are not assly Line work they're they're much more sort of custom kind of uh operations many of them Service uh certainly some Manufacturing manufact picked up on Deming a lot at the beginning and Deming would certainly applaud I believe the uh uh looking for the Simplicity and that's what some of these uh insights help with is how to make it uh more more simple and he also said I you'll appreciate this or not Paul it's that the most important things that that we need to know as business owners are unknown and unknowable they're just too hard to measure or or impossible to measure so when that's the case what we need to do is we have to look at what is the theory how and so part of that theory is what is the least we can do what is the most simple thing we can do and not to uh spend a huge amount of time on uh trying to do spreadsheet analysis instead take a few seconds throw it on a chart which will tell you the type of uh variation you have there there are only two types of of variation and the one type of variation uh is to work on the process the solution is to work on improving the inputs to the process and the other type of variation says what caused that it's worth the money to go investigate what might have caused that bad thing or good thing to happen but what happens to most managers they are taught that every data point is a special cause that they have to go investigate and reward or punish above that's where the huge losses that we see in most organizations come from of size and we work mostly with small business yes we do work with we don't work with Toyota and other big names but most of our business comes from small businesses helpful or not Paul and Jay like it sounds to me when I read those 14 all I came away with was treat your people right and treat them like people and if there're issue if you've got the right people and they're working really hard um and everybody's capability is different but if you just spend time working on improving the process as opposed to trying to make people who don't fit fit then the rest will just take care of itself sure you need to measure some stuff because you need to figure some stuff out and be able to project and do all that but you're not measuring too reward or um you know or punish you're measuring to help improve the process that's a key point the 14 just seemed like I mean I'm sure you know Einstein was really good at like simplifying things but it was just being nice to people be good to people and trust them I think respectful let's be respect trust yes trust and respect seem to be if you trust and that's where the good leader comes in if you have good leaders then they will trust and they'll they'll help people rise to their capabilities but I don't know it seems pretty Common Sense something that might be useful uh for your growth of your your business uh Laura has to do with what you said which is what is the what is the definition what's the criteria for a good leader what does good leader mean fore organization do they use command and control or are they encouraging and being sheriff or are they encouraging collaboration are they mentoring are they helping people get the tools that they need the understanding of the job so they can be successful those kinds of criteria uh help save time and money when you're hiring uh a leader or trying to Mentor a leader a manager as well do a command and control like super 1950 I mean do people still do that oh my gosh yeah I'm G tell you the question I always ask when I've done seminars with small business owners and I say let me ask a question do you ever yell at your employees and I go let me let me read your mind you're thinking well I do that but because I'm passionate and I go no it's because you're an right and it doesn't pay and stop doing it and I would say from what I've seen in businesses the Screwed Up businesses there's a screaming boss there somewhere and they never figure out this isn't helping it's not working no you're absolutely right we just participated in a big study University study of uh middle managers and you know what they spent most of their time trying to do I mean it's it's stunning right it won't surprise you but it's it's just evidence uh the top three things have to do with motivating people and what you all are saying is what Deming said stop demotivating that's that's exactly what I always they always ask me what do you do to motivate I go well there's probably five ways to motivate there's about a hundred ways of demotivating I said stop doing that and that's exactly so wow it sounds like I'm a natural Deming kind of guy then you may be but there will be no award for that back to Paul's situation for a second I'd like to get back to that issue of not being able to predict what is happening with specific projects Paul and and the external factors that that caused that you brought it up as if it was a uh an constant ongoing thing and I'm wondering how big a problem for you that really is I mean do you have instances where you take jobs that you regret taking because it turns out they cost more to produce than you thought they would and then I'm wondering if Demi so just to explain we're building a custom thing and one of the biggest issues in a custom world is just figuring out what the price should be because if you just say hey you know I'll do anything chances are good you're going to be doing things that you never did before and it's very difficult to figure out how long they'll take or what the the issues might be when we're selling tables we have a pricing spreadsheet that allows the salespeople to kind of build a table using features and algorithms kick out numbers and and I wrote all that and there's hundreds of different calculations in it and how did I preload the answers in like what did I do to make sure the algorithms were right nothing I just made up and the reason is it was actually impossible to run tests on all of the things that I needed to have calculations for so what I did was we wrote the thing and then we ran it for a while and we looked to see what happened what is the variation performance how how well does it predict it doesn't really do a great job of predicting any particular thing but it does a good job of predicting the aggregation of all the jobs and what's happening in real life is in our shop floor we have a complex interaction between the thing being made and how complex it is the material we use which is wood which is highly variable when it comes in the door one walnut tree is not the same as the walnut tree we have a range of people and people come in a variety of skill sets and then on a given day they may have a headache or they may feel great or they may have 20 cups of coffee or they may who knows there's not constant performance on them and then we have the clients and then the rest of the company each person is operating within a matrix of all of the other people and what they're up to so it's a highly complex fluid situation and what found was that once we got an algorithm which was reasonably good it was it was best to just throw it out there and say Here's the expectation and we would see what the variation was and when we could easily identify by measuring when the algorithm in the reality were highly Divergent and uh we tended to concentrate on jobs where the algorithm had kicked out too few hours to complete the job and whenever the algorithm kicked Ked out way too many hours to kick to complete the job and the client ended up paying for a lot of unused time we just call that a victory even though when you think about it those are two sides of the same coin which is the algorithm isn't conforming to reality and uh basically my business survives whenever we can predict wrong in the right direction and I don't know I mean I that's just my life and and I've taken enough measurements over enough years to to uh realize that and we've actually been able to identify situations where the algorithm is likely to be wrong in our favor but we don't do anything to correct it because we know that's where we make our money I don't know why you don't raise the algorithm to do that all the time because one of the things that's very difficult is we're selling a thing that nobody knows the price of so that every job we do is is a one-on-one negotiation with somebody who's got some amount of money in their pocket right and we're working against their perception of what thing might cost should cost what else they're looking at in terms of okay if I don't buy from Downs what else could I do and that's usually something which is crappy but you know it's cheap so we're aware that they have other options and we kind of have to make a decision about pricing at the point we got to price in order to get the job done like we were not we we can't be tied to just the algorithm and yeah there's definitely times if the shop is running out of work and I don't want to lay everybody off I might buy work knowing that it's not going to go well but at least we don't have to send everybody home there's other times when we know that that uh the client is feeling happy and ready to spend and we may go for every penny we can get out of that person because if they think it's worth it it's worth it to them you well what can you say price is price is fluid and so that's that's our situation it's not necessarily what happens at the shop floor that makes the job it's actually what happens in the negotiation between the salesperson and the client that's a nice uh way to tease out the the critical piece there for me you know Paul was just talking about is there are some things that help with making and doing and there that are with kind of within more within our control but there are those other things that will determine success that we may not have much control over right so the prospect's budget prospect's perception of quality prospects desire for particular look whatever it happens to be and so then the business owner uh gets to and needs to make the decision that you just said which is the predictions good enough in other words you are making predictions management is prediction you are making predictions within the ecosystem if you will the that you have designed right yeah I don't know if this is helpful or not but all businesses at some level are generic every business takes some input adds value in the throughput and gets an output I mean it's it's not really a lot more complicated than that at that 30,000 foot level where it starts to get more complicated then is how can we improve those inputs I suspect you've been doing it a long time you you guys probably very good at the negotiation but if you haven't looked at negotiation for a while there might that might be Upstream where more money could be made I don't know well thanks for that Insight the the yeah obviously if we could get more money out of all of our clients everybody would be great I think that's true of all businesses right so easy well no that's what I'm suggesting in terms of negotiation skill right we're pretty good at that no suspect you are right you're very successful so I suspect you are so what changed for you from the early days till now I would say that the biggest change was a in my own capacity as a leader but that that took two forms one was uh getting out of my own head and starting to make connections with other business owners so I learned something as opposed to just doing in my own juices the second one was that I've come to realize or or believe that what you want is is to make sure everybody knows the rules of the game they're playing and this this dovetails nicely with the 14 points but uh we have expectations about what people need to be doing all day and how they need to deal with their co-workers and how they deal with customers and how they deal with their work and they're very explicitly written down and people are coached to them and a lot of those things are just stuff that I believe but that's the rules and I think that most human beings are actually quite comfortable in a situation where they're very explicit rules as long as they're applied fairly and uniformly then the other thing is that uh I I just I'm I'm very much about repetition of message and repetition sort of like building rituals into day-to-day operations based on the observation that the most successful human organizations are religions and they do it by telling of the same stuff on a regular schedule and so that I'm trying to tap into the basic human desire to feel like they know what's going on and and then you can let people operate with minute by minute autonomy to get work done as long as they're working within an overall framework that makes sense to everybody if people cannot operate within our rules we get rid of them and when I hire people I say here are the rules do this you're good don't do this you're bad and we give people regular uh regular updates as to how they're progressing to make sure that they understand what's happening that's my system in that podcast Laura you talked about how you track your financials and the amount of time you spend just going through everything and you do it in part because you enjoy doing it and Kelly I think you look listened to that or read that and reacted to it that it it sounded like an awful lot of time and perhaps not the the best use of time for somebody running a business do I have that right my sense was of of of empathy but keep in mind she likes it she she enjoys doing it I somehow miss that part uh because uh you know I don't know you get to decide and you would have better insight about what your highest and best use is so there are I think it was part of discussion about whether you needed a CFO or wanted to look at a CFO or something like that and my concern there was that unless there's a a new method that the CFO is going to be bringing to the data to analyze the data that's faster better cheaper smarter that it wouldn't relieve any of your anxiety and not save you any hours in fact might have the opposite effect but but I didn't know one of my questions I think was well wouldn't I want to be looking at sales all the time I can't remember what quite what the context was in terms of the the cycle of which you were looking at certain things but if she had the time she might be able to look at that more often and that might provide greater ability to predict and less uh anxiety less concern about what might be happen yeah that's interesting I mean I do I look at my end of month number line by line category by category in the in the p&l and in the balance sheet every month um but it's almost like a meditative experience interesting so I look at it from a place of curiosity yeah I'm like oh interesting oh this is inter oh we're using canva now okay I didn't know that that's interesting yeah you're exploring yeah I'm exploring yeah I'm going through as an exploratory and then I'm looking I think my brain is Suited for seeing patterns um and so I'm looking at it from a pattern standpoint and I'm looking at shipping Revenue you know shipping expenses is the easiest way I'm like wow shipping has continued to go up and go up and go up again yes it's exploratory it's very very exploratory for the patterns are you using a visual display or is it spreadsheets both so not necessarily spreadsheets sometimes spreadsheets um spreadsheets and then now I have new software you know that's allowing me to see some visual displays I mean I would love to see something like what you've got part of my issue and one of the reasons I wondered about the CFO is that I don't always know what I'm looking for you know and I don't know what questions to ask I'm just not experienced enough I don't want to discourage you from uh exploring that with a CFO if you're looking just to do an experiment with something that's that's Deming base with the visual display of data and how it can it can show you more at a glance for those line item budgets Etc and what the what the guard rails are for that and give you a signal there are other signals that appear here to show you that this is this is headed out of line This is trending in a direction and so the patterns are very clear on the on the dock blocks well maybe um Lauren we could get Kelly to do like a pro bono analysis of our business and then we could present that to the 21 podcast audience I don't see why not and then do a you know do the whole journey yeah it make sense to me I think so Paul what do you think don't would you want to I'll go last much to my disappointment it it appears as though I failed to instigate any real arguments or disagreements here well I have an argument I think Merit pay is a bad phrase for I think what he's giving as bonuses I know I can count on J you know what before we argue about this we should at least let's see this is remove barriers that Rob people in management and in engineering of their right to Pride of workmanship this means inter Alia abolishment of the annual or Merit rating and of management by objective okay that's the actual wording of what you objected to right yeah yeah I think that you're when you say don't don't have Merit pay you're you're kind of teasing that out of some words that may not actually be there uh this strikes me as as a commentary on sort of the General Electric management practice of firing the bottom 10% every year right and that kind of oh we're gonna we're going to give you A's and B's and you know the danger in those systems is who's writing the report card who's grading it is a ball of whiskey and the end of the day going to give you an a you know like all of that corruption that we saw in 1950s Auto factories uh that strikes me as being what this is talking about and not necessarily a broad statement that no one should ever get Merit pay am am I correct in that well we're back to the operational definition if if I'm a part of a system with other workers and the manager is looking at comparing and contrasting two numbers versus finding out if we're in the same we're all in alignment the same system that's a problem and again that goes back to my desire to make make sure everybody understands the rules of the game they're playing and one of the game one of the rules in my company is you don't win or lose individually you can be fired but a mistake doesn't mean necessarily mean that we're going to come down on you the only measure of success is the company and if the company succeeds I will be able to hand out all those goodies that people need and that's why we've simplified it to just a monthly Revenue Target and then constantly tell people where we are and meeting that Target and I assume that if they can manage not to murder each other when they see each other every day that they'll figure out a way to work together and solve the problems that need to be solved you mentioned something that most people don't understand the Dem he used the words we what we want to make sure we're doing is optimizing the overall organization right and to do that we sometimes have to sub optimize certain pieces and parts of that so it sounds to me as if you Gra Paul you grasped that explain what you mean by that Kelly so uh We've typically been taught that if you optimize every Department you optimize the overall organization and I think these people will tell you that that's just not true that's just not true it's not how it works way it works is if uh we collaborate and work together with the the flow of everybody contributing to the greater parts that is the key that that makes all the difference a simple example uh that I think most people still understand is there was a fad going around for a while in which every Department was a profit Center this lasted I don't know seven eight years every Department had to be a profit Center I don't care if you were janitorial or the internal travel agency or whatever you were people are not going to collaborate they're going to become selfish what's called local Optima they're going to become very selfish for their own Department they've got to show their a profit they've got to show their Merit they've got to show how they're contributing rather than truly collaborating across divisions does that make sense the way I summarize that whole thing is I think that businesses use Sports and allergies too much and in sports there's always a winner and a loser I believe I'm running an orchestra I'm running an orchestra and I want all the orchestra to work together to play Perfect music that sounds lovely that's what I want to do that's another Demming example he said if you want a great Orchestra you don't want everybody coming in playing loudly and all the time thank you Kelly Allen Paul Downs Laura Xander and Jay goz I appreciate your uh allowing me to uh experiment with this thank you very much wait wait don't leave yet if you have a question or a comment that you'd like the 21 hats owners to address send it to me by replying to your Morning Report or by email at lauren2 21h hats.com that's l r n at21 hats.com do it now before you forget and don't be afraid to tell Jay what you really think you can take it and if you got something out of this conversation help us reach more business owners tell a friend subscribe and review us wherever you get your podcasts follow us on Twitter subscribe to the morning report at 21h hats.com this episode was produced by Jess Theron founder of blank word Productions okay now you can leave thanks for listen listening everyone [Music]