W. Edwards Deming: unintentional index investing prophet?

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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W. Edwards Deming’s Red Beads Experiment medium.com/make-work-bett…
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Enumerative and Analytic Studies - The W. Edwards Deming Institute Blog deming.org/enumerative-an…
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Deming's 14 Points for Management - The W. Edwards Deming Institute deming.org/demings-14-poi…
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Online Resources on W. Edwards Deming’s Management Ideas deming.org/online-resourc…
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Statistical process control after W. Edwards Deming 2uo.de/deming/
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I should estimate that in my experience most troubles and most possibilities for improvement add up to the proportions something like this: 94% belongs to the system (responsibility of management), 6% special. - W. Edwards Deming management.curiouscatblog…
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β€œIf you can't describe what you are doing as a process, you don't know what you're doing.”W. Edwards Deming?
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The greatest waste in America is failure to use the ability of people. - W. Edwards Deming deming.org/the-greatest-w…
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"It does not happen all at once. There is no instant pudding.” W. Edwards Deming?
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Podcast with Joyce Orsini and Kevin Cahill - The W. Edwards Deming Institute deming.org/podcast-with-j…
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Audiobook: Tomorrow’s Business Ethics – Philip K. Dick vs. W. Edwards Deming ethicsplayground.wordpres…
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Dr. Deming on Leadership - The W. Edwards Deming Institute deming.org/dr-deming-on-l…
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"Best efforts are essential. Unfortunately, best efforts, people charging this way and that without guidance of principles, can do a lot of damage."- W. Edwards Deming deming.org/best-efforts/
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Interview with Masaaki Imai - The W. Edwards Deming Institute Blog deming.org/interview-with…
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Profound - Ramblings about W. Edwards Deming in the digital transformation era. The general idea of the podcast is derived from Dr. Demming's seminal work described in his New Economics book - System of Profound Knowledge ( SoPK ). buzzsprout.com/1758599/
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The greatest waste in America is failure to use the ability of people. - W. Edwards Deming deming.org/the-greatest-w…
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Join The W. Edwards Deming Institute Team deming.org/join-the-demin…
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Prioritizing Joy in Work - The W. Edwards Deming Institute Blog deming.org/prioritizing-j…
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Knowledge of Variation - The W. Edwards Deming Institute Blog deming.org/knowledge-of-v…
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Appreciation for a System - The W. Edwards Deming Institute Blog deming.org/appreciation-f…
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Video of Dr. W. Edwards Deming: Deadly Diseases of Western Management deming.org/video-of-dr-w-…
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The W. Edwards Deming Institute Blog (the first post from 2012) deming.org/the-w-edwards-…
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A short introduction to the philosophy of W. Edwards Deming, the man who taught the Japanese how to constantly improve the systems of production (part 2) youtube.com/watch?v=mKFGj…
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A short introduction to the philosophy of W. Edwards Deming, the man who taught the Japanese how to constantly improve the systems of production (part 3) youtube.com/watch?v=6WeTa…
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Divide responsibility and nobody is responsible. - W. Edwards Deming quotenova.net/authors/w-e…
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A short video on the American, Japan and W. Edwards Deming in the 1980s. youtube.com/watch?v=GHvnI…
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Musical Compositions by W. Edwards Deming deming.org/musical-compos…
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Addressing Dysfunctional Company Culture - The W. Edwards Deming Institute Blog deming.org/addressing-dys…
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W Edwards Deming: father of quality management, patient and composer qualitysafety.bmj.com/con…
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Photo ID: 111-SC-262132. Original caption: β€œSgt. Edward F. Good of Minneapolis, Minnesota feeds his buddy, Pfc. Lloyd Deming of San Diego, California, a leg of Christmas turkey. Both are casualties at the 2nd Field Hospital, San Jose Mindoro, Philippine Islands.”
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β€œWe are here to make another world.” W. Edwards Deming?
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