How is PDCA Inimical to Innovation?

PDCA. Plan, Do, Check, Act. This process is at the core of kaizen, lean, six sigma, continuous improvement, hoshin kanri, the scientific method and the learning organization. I also believe that the PDCA cycle is inherent to the creative process. PDCA powers innovation. Perhaps it is a question of language tripping us up, or a matter of nuance, but the notion that continuous improvement and it’s friends in the PDCA family are inimical to innovation appeared again today in a Harvard Business Review article titled It’s Time to Rethink Continuous Improvement. Author and consultant Ron Ashkenas writes:

Six Sigma, Kaizen, Lean, and other variations on continuous improvement can be hazardous to your organization’s health.

Granted, anything can be harmful. All things in moderation.

While it may be heresy to say this, recent evidence from Japan and elsewhere suggests that it’s time to question these methods.

This is not heretical at all. While it makes a catchy closing to the introductory paragraph, the author seems to forget that continuous improvement is not a rigid dogma. It is the scientific method, inherently self-critical and rethinking of its current paradigms. An essential part of kaizen to question the status quo, even when this means questioning the very effectiveness of “Six Sigma, Kaizen, Lean and other variations on continuous improvement”.

Giving credit to the astonishing turnaround in quality in Japanese manufacturing “from worst to first” over the past half-century, the author attempts the causal leap using the “the recent evidence from Japan” of the focus on quality and continuous improvement resulting in the struggles of some major Japanese industrial firms:

But what’s happened in Japan? In the past year Japan’s major electronics firms have lost an aggregated $21 billion and have been routinely displaced by competitors from China, South Korea, and elsewhere.

The continuous improvement mindset teaches us to pay attention and think critically whenever the word “evidence” is used. Not all Japanese electronics firms practice continuous improvement, kaizen, lean or six sigma. Not all Japanese firms that do practice these things are losing billions. If we want to understand the problem, we need to break it down. We need to look for multiple causes and their interaction, rather than a single one to explain a complex phenomenon.

If we are free to make causal leaps of this kind, why not choose one of many other factors and claim evidence for these lost billions? Japanese firms with fewer than 2 female board members? Losing money. Japanese consumer products companies whose major market was export? Losing money. Japanese firms with a strong dedication to the environment? Losing money. Japanese firms that had no foreigners in executive positions prior to 25 years ago? Losing money. Pick a favorite theme and look for correlation, and confirmation bias will help you find it. When we are right, we are lucky. When we are wrong, we haven’t disproved a hypothesis; we haven’t learned.

Since we are telling stories rather than presenting evidence, I will share my experience. Having lived, worked, traveled in Japan for much of the past four decades, I have witnessed the trend towards lower volumes and greater variety by Japanese manufacturers for many years. At first this was driven by the need to create constant demand for new things in the quickly saturated and oversupplied Japanese domestic market. The Japanese house had only room for one television. These lasted for 10 years without breaking. So it became necessary to create a reason to cause consumers to desire a new television in fewer years. Japanese brands had to create demand.

Japanese firms became good at quickly launching new and often trivial variations on electronics, automobiles, soft drinks, etc. These were often targeting niche or very localized tastes. One time zone, one language, a compact population base and rapid word of mouth made it feasible to create buzz for new products, long before the internet. However the short product life cycles did not allow for global distribution along complex supply chains. With the rare exception of the Tamagotchi, these products did not escape Japanese borders except in later years, as novelty items.

Each year there is a new flavor of 5-person color-coded superhero (think Power Rangers) TV show not because the old superheroes are dead or no longer capable of saving the world from villains oddly focused on world domination through conquest of Japan, but because the studio needs to sell a new set of toys to a new batch of 5 year old children. In the USA, we are generally content with Spiderman, year after year.

These are quite different types of innovation, more to do with packaging, marketing and selling to a niche that craves novelty. Perhaps this made the Japanese bad at inventing brilliant new technology products. Then again, the packaging and marketing of the MP3 player as the iPod was a brilliant page Steve Jobs took out of exactly this book.

In any case, the point is that Japanese firms became inordinately good at producing a high variety of products in low volumes. For a long time the high volume market was for export. The global recession was not kind to this market. The Japanese economic bubble imploded two decades ago and ushered in a period of low growth and deflation, weakening the domestic market. The population of the country is aging and declining by something like 50,000 people per year. The 30% change in the exchange rate over the past year has not helped the export business. The erosion of volume in Japanese manufacturing was finally capped off by the loss of most low-end, high volume work to China, South Korea and and other competitors. These are a few of the factors, with the possible though not probably contribution for a focus on continuous improvement, which have put Japanese industrial giants on the ropes.

These Japanese firms have learned a historic lesson that no amount of continuous improvement and steady, gradual cost reduction could compete for high volume work with the advantages of Chinese firms with lower cost labor, free land, low interest government loans and leapfrogging by firms entering the market at similar-to-Japan levels of manufacturing technology. The Forbes article Sayonara Sony: How Industrial, MBA-Style Leadership Killed a Once Great Company, while making the misstep of assigning partial cause of Sony’s failure to the work of Deming, does a better job of explaining how the company was a prisoner of its own industrial footprint, making the classic mistake of taking the “product-out” rather than “market-in” path.

The Japanese saw the loss of high volume exports coming for decades but could do little about it. Mass layoffs, social upheaval and restructuring a fixed industrial base only happened when it was inevitable and not a moment sooner, in a few cases only under the hand of a non-Japanese leader. This has nothing to do with a Japanese hyper-focus on continuous improvement and kaizen, and everything to do with the value they place on social stability, and the negligible financial incentives that Japanese CEOs have for gutting their organization, when compared to Western firms.

I fail to see the “evidence” that continuous improvement has caused Japanese firms to fall behind or fail. The failure to launch game-changing innovative products was certainly a factor for the decline of Sony, for example, but if you talk to Sony people they will tell you not about a stifling culture of continuous improvement but the culture where senior engineers decisions were not be be questioned. Don’t ask for evidence of why their brilliant idea will be a winner, in other words. This seems to be an instance of exactly a place where management by fact could have helped.

Ashkenas names a few American companies who practiced six sigma and failed to be innovative, implying but once again without providing a causal link, and quotes innovation thinker Vijay Govindarajan:

“The more you hardwire a company on total quality management, [the more] it is going to hurt breakthrough innovation. The mindset that is needed, the capabilities that are needed, the metrics that are needed, the whole culture that is needed for discontinuous innovation, are fundamentally different.”

This may be true. But as presented, this is an opinion by Mr. Govindarajan, not factual evidence. Many things, including TQM, ISO, six sigma, improper incentives, a lack of customer collaboration, bad food in the cafeteria, can stifle innovation. Simply finding a quote by an expert in the topic is not the same as providing evidence. The full context of Mr. Govindarajan’s quote is below, from a 2007 BusinessWeek article At 3M, A Struggle Between Efficiency and Creativity:

Indeed, the very factors that make Six Sigma effective in one context can make it ineffective in another. Traditionally, it uses rigorous statistical analysis to produce unambiguous data that help produce better quality, lower costs, and more efficiency. That all sounds great when you know what outcomes you’d like to control. But what about when there are few facts to go on–or you don’t even know the nature of the problem you’re trying to define? “New things look very bad on this scale,” says MITSloan School of Management professor Eric von Hippel, who has worked with 3M on innovation projects that he says “took a backseat” once Six Sigma settled in. “The more you hardwire a company on total quality management, [the more] it is going to hurt breakthrough innovation,” adds Vijay Govindarajan, a management professor at Dartmouth’s Tuck School of Business. “The mindset that is needed, the capabilities that are needed, the metrics that are needed, the whole culture that is needed for discontinuous innovation, are fundamentally different.”

The conclusion of the author is that we should not abandon continuous improvement which has done much good, but to nuance it, by avoiding a one-size-fits-all approach, question whether processes should be improved, disrupted or done away with, and by assessing the impact of continuous improvement on company culture. Regardless of the premise, the conclusion is agreeable.

The author’s main concern seems to be be that continuous improvement asks for decisions to be made based on data and facts, even in cases where there ambiguity or a complete lack. But this is not a case of continuous improvement versus innovation; we are faced daily with inadequate information to make perfect decisions, regardless of industry, process or maturity of the organization. Even when we have adequate levels of information, we fall prey to a variety of biases and choose incorrectly. Daniel Kahneman writes brilliantly and in depth about these in his book Thinking, Fast and Slow.
In spite of these limitations, we must make decisions daily, and move on. The key is to have a structured way for the organization to learn from these decisions, good or bad.

Continuous improvement is the framework that allows us to learn. It is the scientific method. It is a question of knowing how to use inductive and deductive reasoning, intuition to process subconscious queues and statistics to make good decisions based on long-term tendencies. One of the central tenets of kaizen is to go see for yourself. Demand data but do not trust it, verify it.

A few simple ways to successfully integrate continuous improvement to innovation are to lay bare our assumptions (visual management), seek out the voice of the customer (management by fact) and learn from experimentation (kaizen).

The HBR article is a variation on the meme of “saying ‘prove it’ is the enemy of innovation”. Yet it is sad when we don’t make a serious, evidence-based attempt to prove this idea. Intuitively, we all know that too much structure can stifle creativity. For as long as there have been accountants and designers, their ways of working have not been completely in synch. If we could show with evidence that this is true, we could begin to solve this problem in a structured way. Unless, of course, innovative leaps of insight are the only ways to resolve such issues.

1 Comment

  1. John Hunter

    June 22, 2012 - 10:34 pm

    I don’t see anything in the various continual improvement frameworks that pushes against innovation. They push for innovation to varying degrees. I think Deming is toward the top on pushing for innovation and six sigma toward the bottom. But the variation of innovation focus within the actual application of each framework is much higher than that between the frameworks (or between continual improvement frameworks and traditional theory x motivation, target driven, cut 5% driven… styles).
    I believe the best people that see themselves more aligned with any given style (say lean or six sigma) learn a lot about others (they read Clayton Christensen, they listen to James Womack, they read Ohno, Deming…). They experiment. They understand the system in which the ideas are being applied greatly impacts how they are applied. They are constantly learning and adapting (and don’t limit themselves by whatever they might identify most with, say lean manufacturing).
    There are core ideas that are shared by those that are more effective in my opinion. They take a systems view (don’t get suckered into thinking simple target based extrinsic motivation etc. are useful), focus on customer value, respect people, practice experimentation, continually learn, seek knowledge, go to the gemba, continual improvement… Innovation is a practice that is respected based on several of these – focus on customer, systems view, continually learning…