My Nature vs. Nurture article. To me? Nature plays a part but Nurture plays a role that is misunderstood. If you imagine a video game reference, it’s like drafting a random player in Madden or 2K’s MyPlayer mode, and developing that player as the centerpiece to a 20 year dynasty. Developing being the key issue. Development is the result of your environment. Whatever you define to be you, and whatever you define to be environment. The magical variable missing from the equation is time. So you have whatever affecting whatever’s evolution over the course of whatever (the system, the individuals, time). You can literally take this statement and analyze any time series event, under that mentality, and really focus in on defining what potential means and then extract the maximum amount of potential from a system. This speaks to whatever manufacturing companies do and now do so well – modern day manufacturing firms are just as much about optimizing productivity measures to increase their total throughput. Modern corps focus just as much on improving what they already do compared to doing new things. This type of progress, between pursing new ventures & optimizing existing ones, is completely a result of the required knowledge and financial capital control, that is available for a firm. I love learning about the concept of control. Control is desire, control is ego – however, in the corporate world, mixing control and transparency can create a powerful monster. Control is having the ability to do something without having any type of preconceived bias and control is knowing how long it will take you. How to get an item from State ABC to State XYZ, it is all about really understanding your environment and how to get your environment to work for you. This type of mentality should persist in people across all different industries, societies and regions – the simple belief structure that:
- If you have a goal
- Plan for that goal
- Try that goal
- If you don’t succeed
- Try again
If you evolve, you learn and you understand, your goals, customer & one self better. Corporations do this exact kind of analysis but control is only possible through some kind of quality management system. When I say QMS, I mean that you’ve been born (as a business) now just continue to understand your market and how to best serve it and you’ll survive (hopefully thrive). Very often this kind corporate ego can ultimately bring about a businesses downfall and that will likely be the result of losing track of your quality and corporate control.
This is ultimately where I think government is at, in terms of the state of their QMS. They say they focus on the customer, but do they really? What kind of value-add does another lawyer bring to a political party? Canadians have to know about a concept called “law of diminishing returns”. It means you can have too much of one thing, especially in the current government system we have right now. It is one that is not led by metrics, KPI, or other tangible measures of progress. I believe the ultimate downfall of politics is just ever present in the nurturing system of the day. Nurture is supposed to mean that we have systems and processes that overlay synergistically on top of one and another and I don’t believe that they presently do. Our processes are broken and our systems a mess. Throwing money at a problem is better, easier and faster than taking the time, learning about the problem, and making it actually go away.
I fear in due time, people from across the world, especially the most vulnerable, will be put in sticky situations, and they will not survive. The beauty about control is that when you don’t have any, you’re essentially useless. Everyone understands or at least, will understand, the concept of the rational consumer. I’ve heard a lot of people say rationality is the basis of making a good decision and markets very often act rationally – this is one of the beliefs so many people entrust the free market. Rationality is a good thing because it assumes consistency. It assumes that, if a user, is at a process step, and is under similar conditions, it assumes that the user will make the same decision. This is the raison d’etre of consumer marketing, by those skilled in the 5Ps and 8Ms, to turn rationality on its side and to be able to describe an experience so vivid, that you don’t mind the 50% premium – that’s okay especially when without the sales pitch, you wouldn’t have had the desire to want and having stuff is nice. This is the definition of the marketing pitch.
When a system is rigged (politics) start asking why. These politicians of today, I especially fear because they act irrationally and it’s because they’re put in extenuating circumstances. Ahh yes, “extenuating circumstances” – the ever-appropriate 2 word euphemism that’s paid for more law school degrees than the concept of the bar mitzvah. When incomplete knowledge is at hand, bad decisions are made at an ever increasingly presence. This is the game that is played in the current political atmosphere, ones that are not made at a high rate in the corporate world. In my last week’s article, I touched on this. One incident can change how companies function, this is due to an ever increasingly used corporate feedback processes. Companies are learning from their mistakes at a higher rate and consequently implementing lean industry led processes. All the while government is sitting on the sidelines. Government is not private industry because government does not play in the same environment. Again, control is all about the current level of quality you can provide and that is based on your environment. If you do not play in the same environment, unless forced onto you from above, you will not be able to deliver the same level of services. What’s ironic is that government always claims to be ethical and always pursuing the public interest but this is the exact brush private industry is painted with. The thing about private industry is that if I’m treated unfairly, I can always switch companies and spend my life at an organization that cares for its employees. One of the primary motivators for private companies to create a fair and equitable working environment – but this internal environment goes hand in hand with corporate learning. As corporations learn and spread best practices, this is only due to greater communication skills between internal business units. Everybody working proactively and continuing to achieve a corporate culture of universal nurturing. For this reason, Nurture versus Nature is not even an argument to me, it is a discussion. Nature always gives certain people a head start but the environment is what allows people to do great things.
To learn more about QMS tools and training, see below:
I will present some introductory reading, which will answer questions like:
- Why do inefficient systems exist in the first place?
- What kinds of inefficiencies are there?
- Intro into control plans and PFMEAs
Reach out to me at email@example.com for additional inquiries.
Marginal product of labour & marginal product of capital. Two phrases you won’t often see in economic analyses but two concepts that must be understood in the wide scheme of implementing a formal QMS. This article will touch on why China is innovating faster than the West and more importantly answer the following questions:
- Why has the West lost jobs
- Why people (economists) think that that’s no big deal
- The destructive effects long term of this short term thinking
Let’s face it, the number one issue in the Western World is not food security, water shortages or border disputes, it is jobs. We’re not talking about Steve here, but actual jobs and even China & India seems to thinking along the same lines. It’s something that Thomas Piketty has pointed out in his Economic Analysis also and it is, as countries mature and start solving the relatively easy problems (e.g. how to feed and educate their population), they will be able to compete with the West for industry. We’ve already seen the destructive boom that Chinese Manufacturing has laid upon the Western Manufacturing World and it’ll only get worse. China is very focused on controlling and creating a cost advantage when it comes to delivering goods to the world at large (google OBOR initiative). I have covered this a little in separate articles but let’s be a little more clear here. There’s a few reasons why the West has lost jobs, the primary reasons being:
- Minimum wage laws
- Lack of transparency for goods imported into Canada
- Chinese SOEs
Let’s briefly touch on each of these factors. Minimum wages laws – they are touted by the Left as the way to bridge the gap to wage inequality – decreasing metrics like the Gini Index (an index that reps how much wage inequality is present in a country). The increase in the Gini Index is supposed to tell people how much more inequal in income a country is getting and apparently it’s gone up in the last few decades in the Western World. People have correlated this with decrease in taxes and other “right-wing” tactics but that’s all talk. I do not think there’s a definitive controlled experiment to validate this relationship because there are many inefficiencies present in the world we live in. I do not dispute the increase in the Gini index, but the question is how do you decrease the Gini index so there’s more income equality across jobs and borders. I argue Minimum Wage laws actually increase the Gini Index. The reason for this is simple, you have a cohort of high school students all at the beginning of their careers and the number one metric used by people before they choose a career, is how much money they’ll make and minimum wage complicates this. At the beginning of people’s careers, everyone earns around the same, it’s not until people are around a year into their careers that they see opportunities for advancement or not. This early low pay across the board is due to high schoolers just not having the marketable skills at their age. Other avenues of misinterpreted data can come directly from high schools themselves; in Canada, I took a grade 11 careers class that really failed to communicate tangible information, I know for a fact this influenced a lot of people my age to go into careers with minimal pay. Again pay is not everything in life but you need to get paid to make a living and have flexibility and when your misdirected from the beginning that is a massive deficiency in the system. Getting back to minimum wage, it introduces inefficiencies that cannot be quantified because you don’t know what percentage of people would’ve taken the hard road and realized that at the end of the day, if you work hard, all the time, you will get rewarded.
Now let’s touch on the lack of transparency for goods imported into Canada. I’ve touched in my Economist’s Moment from this article and illustrated it with a very rudimentary example. In that article, I explain how legislative differences across borders can create manufacturing arbitrage scenarios for large multinationals who can create products in one country and import them into another with relative ease circumventing local laws that add to domestic country costs. This is a deep sentence, so let’s take a step back and explain it a little further. All it means to say is the following, Country A has lax labour standards, so Company XYZ takes advantage of these lax labour standards and produces goods there & imports them for sale in Country B. The goods would have been created for a higher cost in Country B but this can be mainly attributed to labour and employment standards. This is where the free traders (every modern day economist) would go and say that well that’s how free trade works, one country specializes in one activity and another country specializes in another activity and everyone is better off. I would agree with this, had it not been for basic industry standards that stress workplace safety and human rights that large multinationals are able to circumvent through outsourcing production. To get back to the paragraph matter, if there was greater transparency during the goods creation process in external countries to ensure that labour standards and environmental standards are adequate (to Western Standards), then there will be greater fairness applied to domestic manufacturing industry (large or small corps). In Canada, Canadian manufacturing will be on the same footing as the developing world and consequently, the developing world will attain our industry standards faster. Currently when a company wants to go abroad, there’s very little incentive to ensure that products are made in factories that are safe and honest (see worldwide manufacturers exploiting Bangladeshi garment factories).
Chinese SOEs (State Owned Enterprises). Imagine, you’re worldwide manufacturer based in Canada/USA of a good with Steel as a primary input. In the Canada/USA market, you buy this steel at the free market price since you buy it from a separate company & it makes up 30-40% of your total product cost. You have a fully automated line so you think you have your costs controlled. You put in a bid and notice you’re bidding against a Chinese company. The Chinese company puts in a bid that’s very much at your level of cost. Questions start to flow across your company as you wonder how this Chinese company could’ve outbid you so easily. There’s one clear solution, the Chinese company has leveraged SOEs, whose primary goal is to employ people, not play in the free market – but again due to the lack of transparency required in the supply chains of manufacturers, this can all be hidden. This is the path to the slow and steady decline as in nearly every manufacturing industry private market organizations will go up against Chinese SOEs who use shoddy engineering, integrated SOE supply chains, and loss leading contract bids to bankrupt domestic industry. As the Western World loses contract-by-contract to Chinese SOEs, remember that this steady decline will be marketed by government as a non-issue because government will slowly take on more debt and raise taxes on the remaining private industry. This will increase costs for private industry as well since they will have to pass on these costs to consumers. Remember this will likely happen when interest rates rise because then debt carrying costs will increase. I have touched on this topic in a previous blog article but I feel the need to further expand on this. The impetus of government to focus on short term thinking is one of the most destructive long term effects on a nation. Again this can be seen by initiatives of the Provincial Liberal Government led by Kathleen Wynne to deliver short term hydro cost savings to people through borrowing free money. Free money being the Trojan horse of borrowing money at today’s interest rate while not factoring in clear evidence of interest rate increases in the future. This type of short over long term thinking is also used and abused by government to push their marketing initiative. They market Annual budget surpluses like it’s something to be proud of, all the while ignoring all the small problems that are creating massive inefficiencies elsewhere in government & society. Let’s take the example of schooling again. Remember education is the bedrock of a nation, it should be the primary goal of nations to fully educate people for minimal cost so that we can create a system where people can be fully educated. Education is also the primary driver that will create a just, free & open society – noone dare challenge a man/woman with an education because work is by definition, non discriminatory. Anyone can do work and it’s up to the education system to be as fair and open as possible so that people can learn and free themselves from the shackles of persecution. Now let’s talk about education in Canada, the decrease in education standards and how this is manifesting itself in unpaid internships that are being blamed on private industry. Blame is being transferred from one group (people responsible for education) to another group, modern day corporations. This kind of falls hand in hand with minimum wage laws because if people knew that certain careers had a cap of $15 bucks an hr, people would likely not go into them. Sometimes you cannot know this until you start working and you’ve already invested years into a field & at this point the realization of greener pastures in another field, are just not present anymore.
Short term over long term. Notice the silence from Government on the lack of investment by the Automotive Industry in Canada. The only way the CDN government is able to keep auto manufacturing here is by bribing large multinational organizations because there’s such a cost advantage in producing in Mexico. Examples are below:
- $1200M Ford investment to support 800 jobs (March 2017)
- $86M Chrysler investment by the Ontario Guv (Oct 2016)
- $84M Honda combined investment by Fed & Prov Guvs (Jan 2017)
- $100M Toyota combined investment by Fed & Prov Guvs (July 2015)
Forget helping Small to Medium Enterprise business succeed, the government only cares about the big dogs. They’re able to mask their inefficiencies through outright bribing companies and that’s wrong. That hides the inefficiencies and it is not a scalable business practice. Bribing companies is wrong. There is a reason that defense contractors face stiff penalties for bribing developing nations in weapons contracts. Recently SNC Lavalin was blacklisted from bidding on government contracts and it is because bribing is not a scalable business practice, all it does it put government in a bargaining position that it does not deserve to be in.
Today, in the Western World, the Public Sector makes up 30-40% of total spending and this is basically a fixed cost for any company wanting to do business in the West. With growth in the Public Sector, countries are transitioning costs to a monster that cannot deliver services efficiently and in turn, a culture of laziness has developed in government – this is a primary by-product of inefficient organizations. It’s a snowball effect where people who cannot solve problems are given more of a responsibility to solve problems. A culture of zero accountability also manifests, where the message that if you work for government, you’ll get higher pay, a pension and relatively easy work, so why not take the path of least resistance. The path of least resistance is marked by zero focus on KPIs and consequently zero focus on the customer. Cultures where there is ample idle time also lend themselves to greater instances of sexual harassment, bullying & other non-value add tasks and this can be solely attributed to people having too much time on their hands. Just as a side note, I don’t partake in workplace gossip because once you go down this road, you keep driving.
No government entity truly focuses on its customers and no government entity changes fast enough to keep up with tech and customer changes. Let’s be clear. What I mean here is that 1 instance of a process breakdown can completely change the way private organizations function – this would likely never transpire in government because government does not have a formal QMS. Customer pushes as well as cost saving exercises regularly happen in private industry but that is with the assistance of a corporate QMS, that allows for companies to change internal processes while still focusing on the customer and product. For example, how easy would it be to cut travel and meeting costs by employing a teleconferencing initiative among government entities. Again there’s third parties who are clearly stopping these kinds of process improvements but I believe that ultimately the government will be forced to decrease non-value add costs but this will be difficult without a QMS. I hope this article has been able to summarize why the West needs QMS and Quality Standards to play a bigger & bigger role in government.
Marginal product of labour & marginal product of capital
So let’s get to the meat of the article, I have written on this topic before but I like to educate people that what Governments worldwide need, is a formal QMS in order to drive inefficiencies out of their organizations. Voters need to understand that money spent is money lost. If we’re allowing our governments to spend money inefficiently, we as voters have to stand up and say, “enough is enough”. I will touch a little more on why I think free traders need to reassess their mindsets. In today’s world, automation plays an ever increasing role in production. Compared to the 70’s we can not employ 1/100 of the required labour to attain the same levels of production with ALL products. I can say ALL products here because with the advent of PLCs, IOT (Internet of things), Control systems, and other Quality Standard Processes (ISO 9001, AS9100, ISO16949), manufacturing has been revolutionized. In Industry, people are given more data and more responsibility when it comes to what they’re hired to do and there’s absolutely NO reason why a nation cannot produce all domestic products it needs. We need to hire more engineers, technicians and skilled tradespeople because the needs of our world are not decreasing but increasing. This paragraph has summarized the concepts I’ve detailed in the heading better than any economics class could but it’s based around the fact that labour is no longer as required as previous. If you have $1M dollars to invest in a factory, compared to the 70’s, capital owners realize that they need to invest more in technology and skilled trades to create products more robustly at lower costs as compared to the 70s when you would’ve just hired 1000 people to do the work.
Supply and Demand stupid. The reason given for the recent upshoot in home prices. Seems simple enough, a very obvious solution to the giant elephant in every Canadian who hasn’t bought real estate’s life. How can we not understand, the supply of homes is low and more immigrants are coming into the country therefore prices will rise. Even a simpleton can understand that. Try to go to a Real Estate Agent, and they’ll tell you the same thing, forget inflation, forget unemployment, forget the economic argument (because there isn’t one) and buy now otherwise pay 20% more next year. Forget the fact that if house prices fall, guess who’ll be under water in their mortgage? Not the realtor.
For those who remain homeless, should’ve bought when the economic fundamentals behind 10% YoY house price increases were weak at best (think 2015). Now that the fundamentals are even shabbier, young people are supposed to throw themselves into an even more twisted market and over leverage themselves more to barely afford a mortgage, property tax and utilities. Even for condos this ratio can make up at least 50% of a single earners income. Most people I know who are looking to buy only have between 5-8% saved up to put down on a house. Now in most situations this would be considered crazy but in Toronto, that represents approx. 1.5 years of savings, and that’s if you live at home. Right now prices for townhomes are between 400-600k. That means to have 30-40k saved up, I’d need to save for about a year and a half. But here’s where the situation becomes even more unfair. I’m supposed to throw myself into a bubble of prices competing against people who weren’t born in this country and made their money elsewhere for what reason exactly? I’ve paid income taxes and property taxes and HST on the income I’m putting my money down with. I’ve had it documented through T4s and Notice of Assessments for the last few years, yet I have to compete against people who come in from other countries where they made money in those countries systems. This is fundamentally unfair. There’s no level playing field. Vancouver just implemented a foreign buyer’s tax and their property market fell by 40% but the people over in Toronto will tell you that foreign buyer’s only make up 5% of recent sales. This is a bullshit fact. Notice they (CREA, specifically Tim “Lost 3 elections when my party was up in the polls a month before the election” or “I’ll cut 100k public sector jobs” Hudak) tell you the amount of sales but they don’t tell you the total percentage of sales volume. What I mean by this is that what if the 5% is at the top end of the spectrum, what if it’s driving higher prices? They don’t tell you this because they (real estate) wants to keep it’s closed garden of data hidden because if it was open, Realtors would not make as much money. Tim Hudak is incentivized to lie or misconstrue facts to fit his narrative. This is why having people of authority who happen to be uneducated people spewing facts is dangerous. Now everyone who hears that only 5% of purchases are made by foreign buyers will take this to be gospel but no one has asked the important followup question of what percentage of the market (in $ terms) does this make up.
I’m used to paying tax, they’re not
Also who’s to say that “foreign investors” actually lead to more prosperity after their initial splurge on real estate. Think about this. Think about how welfare rates in the richest parts of Vancouver shot up after “foreign investors” invested in the real estate there. This is documented by Statistics Canada (Google ‘Thousands of Metro Vancouver mansion owners avoiding taxes’). We have people who have never paid tax in their lives (this is the Blog writers opinion) who come to Canada, buy a house and take advantage of our system. Again as a Canadian who has made money in Canada, my net worth is documented. Yet when the spigot is finally closed and property does not increase at a 20% YoY pace, how is real estate going to be marketed to sell? We are selling our financial future for short term gain that is going to the least deserving of our labour class (e.g. Real Estate Agents). This is also skewing our labour output as a nation because why be an Engineer or Doctor or other skilled trade when you can just go be a real estate agent. Again these kinds of trends do not manifest over a short time period but rather over the long time horizon. This artificially makes certain trades more expensive because we have a period in time where our young people were herded into becoming realtors. This is the exact same thing that happened to Alberta during the oil expansion, where many young people bypassed University and College for the six figure salaries on the oil rigs.
I explained this to a realtor friend of mine recently. Canada and China are supposed to be 2 separate systems. Free trade untangles this definition but forget even that. Think about this. You have 100 people in China & 100 people in Canada. In China, those 100 people are doing things. They’re working in factories, they’re working on developing needle work skills, they’re working on expanding their technical skillsets. In Canada, there’s a higher proportion of people doing real estate. This is partially due to lack of capital controls that allows foreign capital to come into Canada and devour our real estate market, artificially increasing the value. But since there’s an artificial increase in the value of Canadian real estate it’s a double edged sword because that cost is baked into each and every single corporation’s rent costs. So now we’ve identified 2 areas where costs are artificially higher in Canada due to the influx in Chinese money:
1) Labour rates are higher because there’s more realtors
2) Real estate costs are higher because land is artificially increased in value
Free trade – a globalist’s saving grace
But free trade actually blindsides you into thinking that Canada is still a manufacturing powerhouse. This is because we can still get stuff for cheap. But guess what? We don’t have control over that production and since our consumption isn’t likely to decrease, this makes us more likely to bend over backwards to satisfy Chinese demands. Remember this is an undemocratic country that I wish Canada to not emulate. I’m not going to touch on this but increasing immigration to make up for the fact that Canadians are not procreating at a respectable rate is also a farce of a stat. Since housing is such a big cost, how can anyone afford kids? How do you afford kids without a house? How do you afford kids when there’s such a high daycare cost. Again politicians want to take the easy route to prosperity. Not the one that requires work. These issues were the same issues from 10 years ago but now they’re even worse & the answer is plain and simple, free trade.
Here’s where we get to a common sense problem, one that I’m not really sure why it exists. But it is the ability to apply for a mortgage. I don’t understand why T4s are not the basis for applying for a mortgage. It’s what we use to pay taxes, yet there’s other means of income declaration that we can use to increase the value of a mortgage we can buy. When you have shoddy practices for income verification in the mortgage process, this will likely increase the value of dishonest mortgages. This will also increase the size of a bubble because you’ll have a certain percentage of people carrying mortgages they cannot afford. Again I’d love some government data here but they’re too busy arguing Bill M103. Stopping bad mortgages that seems to be an obvious KPI that the government should minimize. Now I’m not someone who believes in government intervention for private industry. But when the government buys mortgages off banks (who issue the mortgages) and guarantee them, I get nervous. I’m a tax payer and when my future tax liabilities are going to go up because of government inefficiencies, I get irritated. For those who say this doesn’t happen (google “1 in 5 Canadian Homeowners commits mortgage fraud, says top broker”). Again this isn’t Statcan releasing data but just go to a mortgage broker and try to take out a mortgage that’s bigger than you can afford, see if you can get away with it. Now the reason I get irritated is because the same type of system that almost brought down the US Banking system has the same type of underlying system present in Canada. That is the Federal Government has a Crown Corp (CMHC) that is responsible for buying mortgages from Banks. This frees up capital on the banks’ balance sheets and makes it so banks no longer have those liabilities on their balance sheets. The banks transfer the risk of default from the private industry to the CMHC and tax payers. Again life is all about incentives and now you’ve taken away the incentive to only write good mortgages from banks.
So what can the government do in order of effectiveness
1) Implement foreign buyer’s tax – BC had the balls. Ontario has ovaries in the Premier’s Office and Canada has them in the PM’s chair. No chance of this.
2) Lessen mortgage fraud – again will require work. Politicians don’t do work, so no chance of this
3) Increase interest rates – very little chance of this happening. The reason is plain and simple, it’ll increase interest payments the government has to make to service debt (both provincial and federal guvs are deep in the red). No incentive but would be most effective behind foreign buyer’s tax
3) Enforce tax on primary residency – thegreaterfool seems to think this I what the government will implement. Again, it’s uncertain how much this will lessen the market. It’s the least effective of the top 4 government actions
4) Come up with some convoluted law that enriches their buddies and makes it so they do as little work as possible. Bingo bango now everyone go back to work…
The majority of this post will be devoted to the title matter, of why metrics are important. The rest of the post will be attributed to why deficiencies in a system can overwhelm and cause disproportionate damage to a system.
Why Metrics are Important
What I’ve learned by working in a manufacturing environment is the continued proliferation of data driven results is driving productivities higher and higher. One specific KPI that is often used is the number of parts made or services delivered per hour. A simple metric that lets you judge very quickly how much money a company (or person) can make. When you break a process down in steps (Hi Control Plan), it’s also a metric that allows one to understand an end-to-end process and see where the gate in a process exists. This can drive down process cycle times and allow for throughput into a process to be maximized. Remember throughput being maximized.
For when services are delivered, you can scan geographic zones and quickly find out where the quantity is most demanded and where demand may be weak. You can see similarities into how services are delivered, but you can also very quickly see how services delineate in different regions. It is easy to identify KPIs and observe how KPIs differ. This may be the result of differing political conditions, skillset concentration, foreign relations between countries or other variables, but generally in a country, conditions should be standardized. This is to say no matter if I open up a plant in Mississauga or Inuvik, the costs should be the same, so the services that I deliver should not differ much region to region. Now that we’ve kind of created a baseline for nations, what about if external stressors within a country caused services to be a delivered a certain way. Let’s say in the non competitive areas, regions which have slower growth and sparser populations (e.g. Nunavut), services are delivered with services technicians who don’t really have to focus on payment of a mortgage as one of their principal payments. It’s not a stressors in the noncompetitive region day-to-day lives, since this stressor does not exist (or is limited) where they live. I would argue a definite advantage, since we’re talking about finding a place to live, not picking out strawberries. Also if the money stressor is minimized on people, who knows how the service they deliver might evolve. Again this is something that could be better understood with additional (or any) KPI supervision. If you think about your healthcare & how sometimes you don’t feel like the doctor has listened to you (or spent the full 1 hr of a physical with you even though they charge the province for a full hr), I feel this kind of exercise would be an appropriate root cause to see if your doctor has acted in an efficient manner. These complaints are all symptomatic of a broken system and the only way to fix a broken system is through the implementation of a formal QMS. A formal QMS allows you to define customer needs and document tailor made skills that serve that need so that costs are not wasted (or hidden). A short term fix could be increased vigilence when it comes to dealing with doctors, however this will not solve many of the inherent inefficiencies in the Canadian way of delivering medical care. Many will give the excuses that, ‘well doctoring is such a specialized skill and that’s the reason there’s a skills shortage’. But Cuba did it, and they have some of the lowest healthcare costs in the Western World & guess what? Hospitals there are ISO 9001 certified. Now I haven’t been able to view any audit specifications, or control/risk documents so I’m only going by the sentence on their website, but they’re QMS certified so it is an interesting coincidence.
The point of this article, is that when optimizing processes, I can see a quick dashboard of relevant KPIs to ensure service standardization. The reason I mentioned throughput maximization above was because that can point out any service abnormalities. For example, if doctors with a mortgage and substantial debt, have higher throughputs, is that because they’re spending less time on clients or because of a different reason? If you incorrectly identify an unrealistic baseline throughput this could act as an additional stressor, cutting the quality of canadian healthcare.
However we will never be able to define this grey area without the work and we haven’t done the work as of yet. The introduction of a QMS would allow for cost transparency and eventually cost feedback into the process of delivering medical care. This is where I’m going to state, I love my Canadian healthcare and certain aspect of it (as summarized by Ralph Nader. But costs are going up, and to be ignorant of costs is setting the Canadian public down the path for failure – and if not failure, then longer wait times and less options. No analysis is done to ensure sustainability or cost effectiveness (or at least public papers). It seems like the only analysis I ever see thrown around is how Canadians (& nearly every other country with socialized medicine) pay significantly less for healthcare compared to the USA. But as someone with a background in Data Analysis, I always question a single stat that is supposed to summarize everything. For example, simple questions like, does that include R&D spending towards healthcare as well? Do the exact same services cost more or less in the USA? Questions like these.
The rest of this article, I will discuss failure and what happens when something small fails in a big system. To think about idea, I’m going to illustrate eating food in a way you probably haven’t thought of before. The concept is general enough that it can be applied to any process with subprocesses that interrelate. If one of the subprocesses fails to work, then it can put excess load on other subsystem components and cause them to fail prematurely.
Think about when you eat and chew your food to a sufficiently ‘mushy level’. Your body performs best when it is focused on one task at a time. Meaning, if you chew your food slowly and allow the food to enter your stomach little by little, your body can extract maximum nutrition from the food because your body first focuses on chewing, then transporting the food down your throat into your stomach then the rest of the digestion process. You might actually end up feeling more full from less food by this means as well. But if you don’t chew your food properly, then this one habit can end up having long term debilitating effects. You can end up overeating and over the course of many years this can put excess strain on everything from your esophagus to your colon. This is because the body now has to act more to digest the food because the work centre responsible for mushing the food (mouth) did not do its job. This can cause early failure of ‘other’ subsystem components because they were forced to do the work they weren’t designed to do. This exact phenomenon can be present in company documentation and also in government service documentation as well. It’s frustrating to see inefficiencies in a government service that you see present as a service recipient, however since the system doesn’t account for this potential feedback, the system will never get better. The system also does not account for visibility of continuous improvement exercises but that is a step 2 behind setting up a formal QMS.
As someone who’s worked with a few “large” manufacturers (revenues ranging from 50M-500M), I’ve observed a constant that is how different org groups work together to deliver value to their customers. Before Quality Management Systems were “a thing”, organizations discovered best practices through having a customer complaint travel up the org structure, until someone was sick enough of hearing these complaints, that they established a best practice. If the complaints died down, then the corrective action worked and if the complaints did not die down, then maybe it was just something the worker was going to have to permanently deal with.
These inefficiencies were the end result of a couple of things:
- No formal oversight in the service/product delivery cycle
- Companies who grew too fast
- Protected industries
Now I could just summarize all three as competition not rearing it’s ugly head (yet) as it’s obvious to Quality Engineers that if you get it right the first time, you don’t need a QMS to correct (internal or external) services since no inefficiencies exist. But this is unlikely and hence the need to document processes to deliver services.
Before we discuss the “Great Job” fallacy, we’ll do a deep dive of how responsive and flexible organizations come to be by discussing the inefficiencies introduced above. Regarding the first point, this is often the case when a company is delivering parts & services and there’s no active (or passive) feedback mechanism from the customer or its users. This is synonymous to having a closed loop feedback system as compared to an open loop feedback system.
Relating it back to the paragraph just above, imagine having two companies who deliver tires to their customers and they both have the exact business processes and similar cost structure. Assume that one of the companies, decides to invest some money and distribute a survey to their customers and then they use their data to improve their product or even to give better advice as to how customer behaviour (e.g. getting tires rotated or maintaining a certain level of PSI) can lead to increased product performance. This is an example of oversight being created and using the data to improve the product reliability stats. This can provide competitive advantages for companies as it helps them improve internal processes to better suit the needs of their customer. Systematic problem solving has been an industry focus since the 70’s with industry tools ranging from Control Plans, PFMEAs, 8D Problem Solving and PDCA problem solving cycles all being developed.
To the second point, companies that grew too fast, can often have holes in their documentation. It’s a good problem to have since being ahead on the technology curve is usually the root cause for growth. As a result of innovation pushing the limits of the organization to new heights, this gives them a leg up on the competition. However, it’s important to note that this increase in product adoption will only take place until the competition catches up to the new product technology. It’s hoped that the innovative companies were able to cash in on their advances in technology, as catch-up is being played by industry competition. It’s important for innovative companies to document processes so that inefficiencies can be rooted out during a revenue growth phase. It’s hoped that companies who are already large have processes that can appropriately oversee new tech innovation so this block of knowledge is targeted at companies who truly found a new market for their products.
Protected industries do not face competition. This is important to note because this eliminates an incentive for those organizations to reduce their cost structure.
So here’s where we talk about the subject matter of the article, the “Great Job” fallacy. Let’s say your company’s processes could be more thorough and indepth, or they don’t really cover the reality of what a job is presently doing. This can happen as processes mature, process documents need to become live and require updating regularly. The reason for this is that for an auditor or a QA, those documents need to be an accurate representation of what an employee’s labour input is actually being used for. If they’re not periodically updated, then this is impossible. During updates, when gaps are identified, such as a gate process being overseen – this can lead to inefficiencies and the premise of the audit is to drive these inefficiencies into the ground.
For example, let’s say an employee has specific job duties that could cover some customer service aspects as well as some engineering aspects. Now let’s say employee X’s manager thinks he’s spending 75% of this time engineering and the remaining on customer service duties but this is far from reality. Since employee time is a scarce resource (~40 hrs a week) and the primary input into satisfying the needs of his/her manager, it can get neglected in the daily grind of a 9-5. This is what I mean by gate process that gets overseen. The customer service aspect might be taking upwards of 50% of employee X’s time, so it’s the gate between what the manager (& upper mgmt) wants and what the employee is actually doing. The employee can still being doing a “Great Job” but because process flows are ill-defined, it’s difficult for that employee to delegate tasks without going through a ‘learning period’ with whoever they train. Employees who are not especially fond of these ‘learning periods’, might just bite the bullet and inadvertently create that gap between what’s expected and what happens. Over time, this gap between what the employee is actually doing and what the manager needs the employee to do for the organization to succeed, widens. This can rear its ugly head since without a proper organizational QMS, these inefficiencies often go by the wayside. This is an organizational problem that gets overlooked and it’s primarily because of ill defined processes. Proper QMS control can lead to a more flexible organization that better knows its own capabilities and can react better to unexpected events. Knowledge capital can be more effectively reallocated to high priority events, while not affecting the day to day ops of a business.
Economist Moment – Protected Industries
The OPG (Ontario Power Generation) is a prime example of an organization that is completely protected, has no focus on implementing QMS and therefore fails to accurately reallocate their engineering resources. Once a thorough analysis is done of the OPGs processes, I would put money on the “Great Job” fallacy being systemic across the OPG. I only say this because OPG is solely responsible for delivering electricity to the domestic (Ontario) market and costs are going up. When engineering is a key labour input, costs should never go up. Unless it’s a completely unforeseen circumstance that affects global supply chains, costs to engineer a product usually go down over time. OPG has not reinvested profits back into solar or other high capital Green forms of energy either. This is due to non-Engineers creating Energy & Policy decisions for Ontarians without adequate input from Engineers. The Ontario government’s plan to increase the amount of Green Energy was the Green Energy Act of 2007, this led to long term cost commitments that cannot be neglected. It’s equivalent to the 1998 privatisation of the 407 by the Ontario PC party. The Green Energy act has tied the Provincial Government to 25 year contracts with select providers, paying them out upwards of 10x the amount of money, for electricity generated from green energy sources (with rooftop residential receiving the highest payout of 81cents/kWh). I would argue that paying out contracts as large as 100-300k at a 16% interest rate (effectively what the contracts ended up being) was a terrible policy move. Why not just invest in a giant provincially owned solar field? This is why Quality Engineers need to be more included in government. A competent Quality Engineer would’ve flagged the risks of paying out capital projects at a 16% for 25 years.
A key decision made by the Bank of Canada head, Stephen Poloz, to keep the Overnight Interest Rate at 0.50% for another quarter continues to affect regular Canadians in key ways. This rate is essentially the fixed cost for much public & private borrowing that occurs in Canada; whether it be borrowing for a mortgage or an auto loan; maybe even government parties borrowing to finance an annual deficit. When this rate increases, borrowing is made more expensive and when this rate is kept low, then borrowing is made cheaper. How this affects housing prices is if borrowing is made more expensive, people are unable to overleverage themselves or take out big mortgages, so prices stay low. Interest is a tax (inefficiency) on not having full payment today. That much is obvious to some, but to the new generation of Canadians we had to learn the hard way.
Inefficiency Currently Present in Society
Untold millions of dollars of profits have been made in the credit industry in the last decade due to Financial Illiteracy. These are ‘Beginner mistakes’ occurring to a class of people who were not aware of the penalties because no one taught them the basics of that industry. Imagine going scuba diving or even starting at a new job, you must sit through some form of mandatory training where the basics of the activity, and risks associated with the activity are explained. But when getting a credit card, you’re just thrown in the deep end right away. I would argue this is why blame for financial malfeasance lays only partially on end user behavior, since there’s no mandatory kind of personal finance/credit class that can currently be taken in the public school sector. This directly hurts end users. Public education is supposed to be a chance for people who don’t always have the means to pay for that level of training and it’s getting squandered. People are spending 12-15 years of their life in public education and are graduating these public schools not knowing the basics behind credit.
The Bank of Canada might be complicit in not fostering this ideal of Financial Literacy because more people find out about Economics and the faster they’ll realize how having such low interest rates is not necessarily a good thing. We’ve had 0-1% interest rates for 8 years now, (since the US Housing Recession of 2007) and this is training my entire generation of people that cash is forever cheap & it is driving more people to over-leverage themselves. Fancy way of saying that since the cost of carrying cash is so cheap (<1%) bake that into your business plan. Low interest rates are also doing away with training my generation that saving is the way to future wealth. So what happens when rates finally do rise? What’s going to happen to an untold percentage of market players, especially those that bought in late? They will be forced to liquidate (or eat the loss of the value of their properties) and that’s when the bubble bursts. There’s evidence of this in the Canadian Market as of late with the high-ratio mortgages increasing in the Toronto/Vancouver real estate markets. Once interest rates start to rise what will become of housing?
So every month that Stephen Poloz sits back and let’s money stay cheap he’s fueling this addiction to cheap credit, one that has led to Housing accounting for a $7.4 billion increase in GDP — about half of Canada’s economic growth in 2015. This could be described as political football since the Bank of Canada is supposed to make monetary policy decisions that ensure long term Canadian Economic Growth. But it could also be looked at as Stephen Poloz setting up the CDN economy for failure. By setting up this generation for a bubble to pop, he did not ensure growth was unsustainable. The reason I say this is because housing has had such a dramatic growth, and brought in so many tax dollars, a fall in housing activity will lead to a fall in tax revenue and would force tax rates up on those who can still pay. Inadvertently this will kill a lot of private industry because the private industry who’s still making money will end up paying a higher tax bill. This is the series of activities that has occurred in Greece over the last few years and has decimated their private sector leading to a lot of long term unemployment. Now Greece also doesn’t control their own currency so Canada might just see our currency debased by a further 20-30%. Stephen Poloz may be setting the stage for either one of two things to occur in 2017:
1) Keep rate the same which will see the CDN dollar fall so the real estate sector can continue to grow
2) Increase rates and raise the fixed costs for debt penalizing people with high-ratio mortgages disproportionately
Damned if you do and damned if you don’t, I guess that’s why you don’t base your monetary policy on perpetuating a bubble.
Now we switch gears to discuss Public Debt. All levels of government will be affected by this increase in the Overnight Rate as this increases borrowing costs for governments financing of deficits. I bet that the Ontario Liberal Party is not accounting for this risk of increasing debt service costs in their deficit projections even though it’s likely to happen in 2017. The reason I say this is because the US just decided to raise their Interest Rate to the %0.75 level as well, thereby increasing pressure on our dollar to depreciate relative to theirs. We usually try to mimic US interest rate behaviour but this time we may not. Now this will be good for Canadian Export driven corps but if the USA increases their corporate tax rate to 15% (from 35%) and provide a one time amnesty clause to corps holding foreign funds, this may lead to further long term structural currency depreciation.
Economist’s Moment – the Carbon Tax
I’ve spoken to how Free Trade can affect a nation’s Economy before and I will use this Economist’s Moment to further add on to this.
Free trade benefits:
- Comparative advantage allows for net consumption to increase because individual countries are specializing in what they’re good at
- Consumers can afford more with less
- Supposed to lead to a net increase in people working
Free trade negatives:
- Since countries are now specializing in the production of goods and services, entire technology skillsets get outsourced
- Domestic production will not be allowed to innovate on current designs out on the market because the opportunity will not be there
- Costs and labour practices are hidden since they happen in a different country (how can we send food inspectors half way across the world if that’s where our food is made)
- Allows for corporations to pick up and move operations easier
- Labour mobility is clearly hampered because corps can move but the labour cannot
- Countries have to give up sovereignty to be signatories to many free trade agreements
I’m not a fan of free trade. I believe that perfect competition can lead to the lowest prices for consumers and the only reason Western societies are more pro-Free Trade (until Trump was elected) is because the costs to start up a business in the West are so high. I would argue government regulation has a big part to play in this but I cannot pinpoint an exact percent cost attributed to government. Governments are careful to not audit themselves, or show cost transparency and implement a series of measures to ensure secrecy so they can hide the costs they pass on to their citizens. For these reasons, perfect competition is impossible to attain in the West and that’s why Free Trade is such an easy thing for bureaucrats to campaign on.
But here’s the part where they don’t like to talk about and that is once all the auto jobs are outsourced, what happens to the supporting infrastructure (engineering, skilled trade & post secondary education jobs) for that industry? They leave too. All the future innovation that would have happened in Canada disappears as well. This is the reason why free trade does not make sense for countries like Canada. Once we outsource an industry completely, we not only lose the ability to innovate on that industry but all of a sudden we are also dependent on foreign countries. Kind of like how Trudeau cannot risk to damage Chinese-Canadian ties. He cannot bring up Human Rights Abuses carried out by the Chinese. They control his purse strings and the ability to deliver product to our domestic industry. When dealing with a country like China, it’s important to understand that unfair government subsidies are also a temporary way for Chinese goods to gain a foothold in the Canadian market. Deceptively tricking the Canadian Market into believing that cost savings are greater than they would be if those subsidies did not exist. Again disadvantages of free trade.
Now we get to the carbon tax, that the Trudeau government has advocated for. This will kill Canadian jobs because he’s pursuing a policy to tax dirty industry and chase it from Canada. Again he’s not focused on utilizing information to educate Canadians to change consumption habits (e.g. discussing the impact of carbon intensive food manufacturing). I get the overall point, which is he’s hoping for corporations to invest in green energy so that carbon footprints can be minimized. But again that’s discounting free trade. Let’s look at the example of Chyna selling phone cases at the local mall. She has a successful business where she sells 200 cases a month and sources all her phone cases from a Canadian manufacturer. She pays $1 a case in costs and this happens to be the same cost as Chinese producers. Now with the incoming carbon tax, costs will rise to $1.3 per case from the Canadian manufacturer but because China does not have an equivalent tax, those cases will remain at $1. Who is going to lose out? This is going to happen all across the economy because we don’t tax incoming product the same way. We unfairly penalize Canadian manufacturing then wonder why manufacturing is moving overseas. I understand why free trade exists and why it’s important to foster free trade relationships worldwide, but politicians too often don’t know when to strike a balance with free trade partners. If free trade partners are using child labour, or 16 hour working days to churn out cheap product, how is that fair to Canadian workers? This is where I don’t understand how only 1 Canadian Premier stands against the incoming Carbon tax. You can’t just ship ALL industry out of Canada. There will be no jobs left. Time has come where we need to stand up on our own two feet and see domestic manufacturing flourish.