I recently finished reading Out of the Crisis - byline "The New Economics for Industry, Government, Education", by W. Edwards Deming, originally published in 1982 but updated in '86.
For those who don't know, Deming was an American who brought Quality to Japan after WW2. Things often credited to the Japanese industry, such as the Toyota Production Model, just-in-time, etc., can be traced back to the conceptual seeds he planted in exchanges with leaders of Japanese industry in 1950. The American Society of Quality has a nice short biographical write-up on him.
Deming presents his common diseases of management - applicable to any manufacturing or service industry - with heavy emphasis on management responsibility. The reason for this is that management can only change the company's system, and the company's system is by far the overwhelming driver of employee productivity. He specifically quantifies (by experienced estimate) that "most troubles and most possibilities for improvement add up to proportions something like this: 94% belong to the system (responsibility of management)[,] 6% special" (ch. 11, "Common Causes and Special Causes of Improvement. Stable System").
This struck me being very similar to the argument against actively managed portfolios: take 100 active portfolio managers working for a decade, and some of them will beat indices primarily by luck; but the success of the best managers in this group will be erroneously attributed to their personal touch ("special cause"). When in reality, the reason for their success belongs primarily to the system ("common cause"). So the recognition of this myth of the active investor who by their own special touch consistently beats indices has rightly given rise to the popularity of index investing, and with it removed an inefficiency from a great many investment portfolios.
A fun illustration of common causes attributable to the system nevertheless being attributed to individual employees (either as accolades for high performance or admonishment for low performance), the book introduces the red bead experiment, a simulation that can be done with 10 volunteers. It's well illustrated by an industrial engineering professor in this short YouTube video.
What else really struck me was Deming's wealth of insights, quotes, and stores regarding the common diseases of management. As an index investor, as well as having worked in technical service industries, I bo
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