Deming’s First Theorem: Nobody gives a hoot about profit

People spend a great deal of time worrying about profits and claiming credit or diverting blame for profit results. So why did Dr. Deming say “Nobody gives a hoot about profit?” He looked at the actions senior executives take and he looked at the actions that should be taken to maximize profit over the long term. He didn’t see that executives took the actions consistent with maximizing profit.

Dr. Ackoff found the same thing. Dr. Ackoff examined the actions executives took. The actions the executives took didn’t make sense when you tried to justify them based on the idea executives were most concerned with profit for the company. The actions were sensible if you looked at them as taken in order to maximize the executive’s well being.

As Dr. Ackoff says, a secondary focus on profits is just the cost executives must pay in order to maximize their rewards. The actions taken would be different if the well being of the organization was primary and the well being of senior executives subservient to that aim.

If someone does give a hoot about profit they need to take the actions necessary to strengthen the organization for the long term. They need to eliminate bad practices, such as the deadly diseases of western management. And they need to institute good practices such as viewing the organization as a system, managing with an appreciation for variation, continually improving using the PDSA cycle, adopting practices that allow people joy in work and the many other practices we have discussed (and will discuss) in posts on this blog.

His 1990 speech, Does anybody give a hoot about profit? (the link was broken, so it was removed), Dr. Deming explained the need to gain an understanding of the system of profound knowledge to guide management action and drive profits. Without doing so organizations tolerate many practices which drag down profits.

Related: Ackoff: Corporations Are Not Led By Those Seeking to Maximize Shareholder Value