The document discusses how entropy, the natural tendency towards disorder, affects business systems and highlights the importance of continuous improvement in people, processes, and materials to combat deterioration. It emphasizes Dr. W. Edwards Deming's 14-point methodology for implementing quality programs and improving organizational effectiveness. Key strategies include training, leadership, and the elimination of waste and process inefficiencies to enhance overall performance.

1. Combating Entropy in Business
By Jose Villanueva Alcedo, M.B.A./T.M.
CEO, YouKaizen.com
Understanding the law of nature about Entropy can help prevent business deterioration.
Entropy is the potential energy that is not available for work. Thus, in a closed
thermodynamic system, entropy deteriorates due to degradation. It is a physical law of
nature that if entropy is left untouched could steadily deteriorate. Therefore, entropy does
not do any good.
The bad effect of entropy is analogous to disorder in a business system. Like entropy
businesses decline in performance because of degradation. It needs to be reinforced from
outside the system in order to maintain its effectiveness, [1].
Deterioration happens in many aspects of a business system in all levels, whether the
business is new or old. Think of a manufacturing system, for example. Basically, it is
composed of people, processes, and materials, which are orchestrated to deliver finished
goods and services to customers. In order to be competitive, the products should have the
quality that will delight customers and at the least price. The presence of business
disorders (entropy) can’t sustain the quality and competitive price of products. In looking
at people, processes, and materials, which are subject for degradation, one should
investigate where the disorder (entropy) is and how to fight the deterioration. Thus, the
following factors should be studied:
People
As businesses run on people so as their skills. Good people skills matter in business.
Deterioration in skills is a natural process, especially in fast changing technological
advances. Therefore, people training and retraining should be an ongoing process on the
job. People refer to employees and management. They both should have an ongoing
process to fight entropy.
Business disorder (entropy) happens when management starts managing people instead of
leading. Fight entropy by having managers manage processes but lead employees.
Dr. W. Edwards Deming, quality guru created management philosophies that are
described Deming’s 14-point methodology. These philosophies teach organizations the
strategies of implementing quality programs, by creating an environment of trust and
teamwork within the organization. The following are strategic guidelines that focus on
improving processes, employees, management, and systems: (1) Create a constancy of
purpose toward improvement of product and service. (2) Adopt a philosophy. (3) Cease
dependence on inspection to achieve quality. (4) End the practice of awarding business
on the basis of price tag. (5) Improve constantly and forever, every process for planning,
production and service. (6) Institute training on the job. (7) Adopt and institute
leadership. (8) Drive out fears so that everyone may work effectively for the company.

2. (9) Break down barriers between departments. (10) Eliminate slogans, exhortations, and
targets for the work force. (11) Eliminate work standards (quotas) on the factory floor
and numerical goals for management. (12) Remove barriers that rob people of pride of
workmanship. (13) Institute a vigorous program of education and self-improvement for
everyone. (14) Put everybody in the company to work to accomplish the transformation.
This methodology, designed by Dr. Deming, sustains organizations’ transformation to
continuous improvement. It points out that the organization and the individual worker
must work together, as a team, for a constant improvement of whatever they do, [2].
Processes
Every day we come face-to-face with some type of a process. A process is defined as a
blending of inputs that generates corresponding outputs. Continuous process innovation
should be done in order to combat process entropy. Continuous Improvement techniques
have been taught for over seventy years that emphasize taking a hard look at processes
and improve them. It is a low-cost approach to improve processes. Even Innovations
should be constantly improved by re-engineering or retooling in order to prevent
deterioration.
Materials
In addition to materials, other inputs such as policies, methods, procedures, and
environment should be considered. The choice of inputs, and the quality determines how
well the outputs are produced with respect to customer requirement. The reduction in
variation in quality of raw materials is key to producing quality products and services.
Variation causes tremendous impact on the bottom line of the organization. It costs time,
money, and resources. It could mean losing business.
The outputs constitute the resulting product and services or completed task. What is
important to consider is the cause and effect relationship between inputs and outputs.
Where to Start
The business entropy caused in people, processes, and materials impacts the bottom line.
This system of people, processes, and materials should be the target for improvement.
Since entropy comes at random into the business system components, it is critically
important to have a target where to start the improvement.
A rule of thumb, 80-20 Rule or the Pareto principle is one of the tools to locate where to
start. Under this rule, about 80% of the problems or entropy are caused by 20% of the
causes. Therefore, one should look for this 20% causes. Waste is visible in business.
Since usually the problems come in the form of waste, by reverse engineering, another
way to start is to determine what constitute 80% of waste. Then, using Cause and Effect
diagram determine the causes of these wastes for elimination [1].
The problem is variation. Realize that variation in the quality of people skills, processes,
and materials are difficult to visualize. Variation is like virus that infects business
systems in all areas and couldn’t be seen. Many organizations think that variation is

3. normal that our accounting systems so cleverly hide, only to see the effect until they
surfaced as waste.
Waste comes from transport, inventory, motions, waiting, over production, over
processing, defects, and skills (TIMWOODS).
One Continuous Improvement technique, known as Cycle Time Reduction, is designed to
eliminate waste.
Cycle time is the elapsed time a process is completed. Reducing cycle time is achieved by
streamlining the process flow with the goal of eliminating the non-value-added steps of
the process. Non-value-added steps are those that do not add value to the customer, e.g.
delay, transport, rework. The best way to identify the non-value-added steps is to draw a
process flow chart. This technique had been tested to reduce cycle time of processes to a
significant amount. The revolutionary Ford Assembly Line Concept of manufacturing,
the second wave of the industrial revolution, has been proven to reduce cycle time and
eliminated waste in time, money, and resources.
References:
[1] Competitive Edge, by Jose Villanueva Alcedo, MBA/TM, Publish America, U.S.A.,
2011.
[2] Out of the Crises, by W. E. Deming, Cambridge, Massachusetts of Technology, 1986.