Deming Lens #38 - Short-Term Thinking: Dr. Deming Nailed It! - a podcast by The W. Edwards Deming Institute

In our 38th "Deming Lens" episode, host Tripp Babbitt shares his interpretation of wide-ranging aspects and implications of Dr. Deming's theory of management. This month he looks at short-term thinking.

SHOW NOTES

[00:00:15] Deming Lens #38 - Short-Term Thinking
[00:00:56] Attorney General Barr on American Executives
[00:04:15] Dr. Deming's Take on Short-Term Thinking

[00:09:56] We Need New Thinking in Executives

TRANSCRIPT

Tripp Babbitt: [00:00:15] This is the Thirty-eighth Episode of the Deming Lens. Hi, I'm Tripp Babbitt, host of The Deming Lens. And over the past month, I have been listening to some of the political things that have been going on, and they have no intention of making the Deming lens a political lens by any stretch. But there was something there was an interview with Attorney General William Barr.

Tripp Babbitt: [00:00:56] Now, no matter what your political affiliation, William Barr got on and he was talking about China and way, which they're putting in 5G networks all over the world, being helped by the Chinese Communist Party or the CCP.

Tripp Babbitt: [00:01:19] And a lot of this is being subsidized because at least the belief of this administration is, is that China will use this because they fund of the wall way or help fund Wall Way, give insight and to secrets and intellectual property and things of that sort all over the world.

Tripp Babbitt: [00:01:47] And what I thought was really interesting was some of the things that William Barr said.

Tripp Babbitt: [00:01:56] I've never heard anyone in government quite put it this way. I've heard about all the greed and stuff that are in corporations. You hear that talk quite a bit. But he was the first person that said, you know, that U.S. businesses are helping China in the race for economic and technological dominance by putting their earnings, their their organizational or company earnings above national interest. And that really just struck me. I've never heard a government official really talk in those terms before. There was the end in quotes, basically. Attorney General Barr said they're willing, ultimately, many of them meaning these companies, to sacrifice the long term viability of their companies for short term profit so that they can get their stock options to move to the golf resort.

Tripp Babbitt: [00:02:55] Now, that's a direct quote from William Barr in an Republican administration, which, like I said, it really struck me as something very different. And I think there's some frustration where there was expectation that a lot of the companies in the U.S. when they got the tax cuts, would be moving companies back. They'd be investing in things in their own company. But instead, they most of them have forgone dividends. But they've done a lot of stock buybacks, which artificially raises the price of stocks. And, you know, Barr's mantra was that these executives are not taking the long term view and then the national view of maintaining the American strength.

Tripp Babbitt: [00:03:48] So now there's all types of talk about maybe the U.S. is going to invest in Nokia, which is in Finland or Sweden's Ericsson or a combination of the both of the two, in order to compete against war way so that countries will have access to the 5G network.

Tripp Babbitt: [00:04:15] That from a basically free country. So I immediately when you hear these things, the first thing that hits you is, OK. This is Dr. Deming talking all over again about short term profits. And I talked about this a little bit and the stock buybacks and things like that. An episode in the Deming Lens, Episode 35. So you can go back and you can listen to that particular episode. But but when I was looking through for the short term profits, I found something that Dr. Deming said that that fit perfectly. So I just want to this is from out of the crisis. It. He says short term profits are not a reliable indicator of performance of management. Anybody can pay dividends by deferring maintenance, cutting out research or acquiring another company. And here, I might add, you know, doing Stipe's stock buybacks and options to put more money in executives pockets. But it goes on to say dividends and paper profits, the yardstick by which managers of money and heads of. These are judges to make no contribution to material living for people anywhere, nor do they improve the competitive position of a company or of an American industry. Paper profits do not make bread. Improvement of quality and productivity. Do they make a contribution to better material living for all people here and everywhere? And then I'll just finish this.

Tripp Babbitt: [00:05:57] This particular section that Dr. Deming goes on to say, people that depend on dividends live on to live on should be concern, not merely with the size of the dividend and today, but also with the question of whether there will be dividends three years from now, five years from now, 10 years from now. Minute management has the obligation to protect investment. Wow. And you Attorney General Barr's position is we're not being competitive with wall away because American management has to short term thinking. And then you wonder kind of what's changed in the United States since Dr. Deming observed these things back in the early 80s. Now, we know that the longevity of companies, let's say in the S&P 500 has narrowed that itch. It's shortened over the years. Yeah, a thirty three year average. Tenure of companies in the S&P 500 1964 narrowed to twenty four years in 2016 and is forecast to shrink to 12 years in 2027. Now, there's a couple different ways to look at this. I mean, yes, we have a rapidly changing environment where organizations are being disrupted or whole industries are being disrupted because of technology and the Internet.

Tripp Babbitt: [00:07:35] These are things that, you know, will continue to happen.But what hits me in the face is that none of these organizations are looking really to the long term when they're doing things like corporate stock buybacks. Dr. Deming talked about dividends and as I mentioned in Episode 35, that that's kind of been replaced by these stock options and artificially pumping up the stock price through the stock buybacks by making fewer stock, few fewer and fewer number of stocks available in the market. So we've got this environment going on and we're not reinvesting. I spoke to an executive recently and she told me that we're talking about making no change. And this was in the in the financial arena. And she told me that, well, our executives are getting close to retirement. And really what they're about as is getting as much money out of this financial institution than really trying to make significant change. You know that this is something like what I'm talking about and making huge transformation in an organization wouldn't fly because its executives just wouldn't be interested. And they're looking for the shortcuts to get their stock options higher and their bonuses higher and things of that sort. And I got to tell you, I I see this a lot and have seen it a lot in organizations over the years, especially as a consultant, because people are saying, well, what can you cut out of my organization? But there is a change going on. And I don't want to be completely pessimistic about what's going on in the environment today. I have all sorts of issues with plenty holes and some of the things that they think. But one of the things that they are about is the greater good. Now, I think sometimes that's misguided. But at the same time, they seem to be looking to not just stuff their own pockets.

Tripp Babbitt: [00:09:56] Now, a lot of them haven't risen necessarily to positions where they can make a lot of money and pocket the pocket themselves. And we'll be interesting to see. Do they follow the same path of many of the boomers that preceded them in executive positions and start to take that? But but I. I don't think so. I think there's enough going on our society about inequities that things will change for the better. And we'll start trying to do things that are for the greater good. And just a for instance, no matter what you think of Mark Cuban, I'm a huge shark tank fan. It's just it's good entertainment. But, you know, he's he has talked about, you know, we need to find ways to accumulate wealth. If we're going to give stop stock options to executives, maybe we should be giving them to employees. But I think these are that this is the type of thinking that is going to be need to be considered or the new theories that we need come up with the find ways to help get people out of poverty. You know, a lot of people talk about rebuilding the middle class, but there's inefficiencies in the way that we operate today when things go through these large institutions for things like Medicaid and food stamps and things of that sort. They have to go through these huge machines in government to dole out things that people need in order to be able to live. And that, to me, is is completely ineffective. And an inefficient way of doing it is putting through these big machines that have basically provision services at exorbitant rates. It's very expensive to send people back through the government. So these are. So this is some of the thinking, that I think we're going to need to tackle as we move forward.

Tripp Babbitt: [00:12:11] And you know, Dr. Deming, I think he nailed it back in the 80s. And we seem to be we seem to cycle through this to a certain degree. I think this great disparity that we have between, you know, what an executive salary is and an employee salary is, there's been a lot of light shined on it in the past where you thought maybe there would be some things I would be going. We've talked about women and equality of pay, minorities in pay. But I think as we start to recognize that some of the greed that has penetrated our system makes it something that that we're going to need to come up with new theories.

Tripp Babbitt: [00:13:01] And I think Dr. Deming had nailed it right from the beginning that we have to look much bigger at larger systems.

Tripp Babbitt: [00:13:09] Are we maximizing the value of our society as opposed to just our organization or our individual pocketbook? So that's what I wanted to talk about this week or this month on the Deming lens and just gives us something to think about, about how we want to run our organizations. I know one of the things that I'm doing, I'm building executive education program that has a lot of this in it. Not not to browbeat executives into to do something they don't want to do, but in essence, to make them aware of what their thinking is. And, you know, how does this how how does this play into the greater good of society and how can we make it better?

Tripp Babbitt: [00:13:56] Thank you for listening to the Deming Institute podcast, stay updated on the latest blogs, podcasts, programs and other activities at Deming dot org.

 

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