enVista logo blue


The New Economics for Industry, Government, Education

Lean Process wheels


In “The New Economics for Industry, Government, Education (Second Edition),” W. Edwards Deming explains several key issues around management and its lack of success in its current and traditional state. He introduces a theory known as “Profound Knowledge.” Deming also focuses on the key concept of a system and what makes one successful in several different areas ranging from Industry to Government to Education. He concludes with an examination of system variation and how it relates to processes.

Key Points / Themes

  • Managers need to drastically change their traditional practices and principles in order to be more successful managers.
  • The Theory of Profound Knowledge focuses on three key themes: Appreciation for a System, Knowledge of Variation, and The Theory of Knowledge.
    • Appreciation for a System – understanding a system and how it works with other components to create a need for communication and cooperation.
    • Knowledge of Variation – understanding that variation is a part of life and knowing the difference between a stable state and an unstable state.
    • The Theory of Knowledge – understanding that management is a form of prediction.
  • The Red Bead Experiment highlights the following:
    • Demonstrates an example of rigid and poor management that is often utilized by traditional managers.
    • System variation is part of any and every process.
    • All employees perform within a system that has components that are beyond the workers’ control.


The second book in the Lean Six Sigma series is integral to a manager’s journey in transforming their organization. The Red Bead Experiment is an excellent example of how a broken system or process can not only demotivate employees but also cause frustration among management. It’s key that managers review processes and work with employees to determine ways in which the process can be improved. Employees understand the system and can often make suggestions that may be overlooked by management. In addition, management must also search for ways to improve processes since not all improvements can be made by employees. As Deming points out throughout the book, some improvements are simply out of the control of employees.

Questions/Ideas to Consider

  1. What systems are prevalent in your organization?
  2. As a manager, how can you gain a better understanding of the interconnectivity of the components within the system?
  3. What are your views on Deming’s thoughts on competition?
  4. How did the The Red Bead Experiment impact your views on systems?

What’s Next?

Next month we review “Design for Operational Excellence” by Kevin Duggan.

In the meantime, consider the questions above. We’d love to hear about management and systems in your organization, both good and bad.

About the Author

Related Posts

White Paper

Increase ROI Through Successful Warehouse Slotting

A well-thought-out slotting strategy also enables businesses to minimize wasted space and maximize storage capacity within the warehouse. Increase ROI using the right tools, strategy and management plan with successful warehouse slotting.


The Cost-Saving Power of Artificial Intelligence in Supply Chains

There are endless tactical opportunities for leveraging AI in your supply chain operations to increase efficiency, profitability and customer service levels. Beginning your AI journey within the areas of the supply chain that are costing your organization the most – network design, inventory and warehousing – will multiply your cost savings.

Read Blog
Shopping Basket

Contact enVista

Thousands of clients across a variety of industries consider enVista an integral and important part of their business strategy. You should, too.
Notification Header
The leading news agency comes to your smartphone.  Download now.