Looking at Layoffs Through the Deming Lens

Guest post by Bill Bellows, Ph.D. President, InThinking Services, Inc.

Massive companies, including Twitter, Meta (Facebook), Amazon, Ford, and others, are announcing staff reductions and offering a vivid reminder that your next paycheck could be your last paycheck. Working in the aerospace industry for 30+ years, I witnessed staff reductions, from small to large, from immediate to gradual, and the impact of these reductions on those who are “tapped” and those who remain. “Tapped” means someone, very likely your manager sometimes accompanied by someone from security, enters your office or cubicle and “taps” you on your shoulder to let you know it’s time to pack your belongings for an immediate departure to the front lobby. Whether you are being “made redundant” in London or being “laid off” in San Jose, you are suddenly unemployed.

Who is responsible?

Given these downsizing announcements, one might ask: what led to the decision to cut staff? Software errors by Meta or Twitter programmers? Poor purchasing decisions by the procurement department within Ford? In the first chapter of The New Economics, Dr. Deming asked, “Why did the bank close?” to which he offered possible explanations,

“Because of sluggishness at the tellers’ windows, mistakes in bank statements, mistakes in calculation of interest on loans? Nonsense. All these operations actions could go off without blemish, while the bank closes. Who was responsible? The management, their bad loans.”

The vast majority of companies take the same approach to downsizing (popularized today as “talent management”) and cutting costs: they lay off workers deemed “poor performers.” Dr. Deming used The Red Bead Experiment to show how workers are trapped in systems that can only be changed by management. He also emphasized that cookie-cutter approaches are another management trap. As presented in a Deming Institute blog by John Hunter in October 2020 a “Deming Guide to Layoffs,”

“…each situation is unique and exactly what is called for depends on that situation. I think all those practicing Deming’s idea would agree the company should take significant efforts to care for those employees (offering them jobs in a different part of the company, etc.). I can imagine cases where layoffs make sense without cutting dividends. One of the features of Deming’s management ideas is that while there are principles that are consistent, they must be applied by thinking people to the specific situation. This is one of the reasons this blog, Tripp’s podcasts, conference presentations, books, [DemingNEXT], etc. are so valuable. Reading about how numerous people who are applying Deming’s ideas think about the application of Deming’s ideas is important to figuring out how to apply them to your unique situation.”

In a separate blog, Bad Management Results in Layoffs, John offers that:

“Layoffs are a failure of management. If the company has not been executing a long-term strategy to respect people and manage the system to continually improve, manage for the long term, working with suppliers… it might be they have created an impossibly failed organization that cannot succeed in its current form. And so yes it might be possible that layoffs are required.” 

Ford’s approach is (slightly) different.

The Wall Street Journal recently reported that Ford Motor Company “made moves to streamline its white-collar workforce in recent months as part of a broader effort to slash costs by about $3 billion annually by 2026.” As for an explanation, the WSJ article offers,

“In August, the Dearborn, Mich., auto maker said it was laying off about 3,000 salaried and contract workers in the U.S., Canada and India, a move that followed months of company executives signaling to Wall Street that it needed to reduce staffing levels. Ford Chief Executive Jim Farley has said the shift to electric vehicles is prompting a reassessment of the company’s resources, including its staffing levels in some areas. “We absolutely have too many people in certain places, no doubt about it. And we have skills that don’t work anymore and we have jobs that need to change,” Mr. Farley said on a July earnings call.”

The layoffs are not due to sluggishness at the tellers’ windows, mistakes in bank statements, or even mistakes in the calculation of interest on loans. As Dr. Deming wrote in The New Economics: 

“Job security and jobs are dependent on management’s foresight to design product and service that will entice customers and build a market; to be ready, ahead of the customer to modify product and service.”

While addressing the need to slash costs by about $3 billion annually, missing from Ford’s announcement and in the WSJ coverage is a list of any additional cuts being made to achieve the $3 billion annual goal. Are they cutting senior management salaries or bonuses or shareholder dividends? To paraphrase Dr. Deming, Ford saw their theory of the future of the electric automobile, one which collided with a theory from Elon Musk, as in need of revision and is acting quickly to revise their theory.

Accompanying the announcement of the staff cuts within Ford, the WSJ article also highlighted how the staff cuts will be made. In a unique (and slightly more humane) approach, Ford will offer targeted staff two options, a severance package or participation in a “performance management program” associated with its “talent-management policy.” Ford will extend the latter option to employees with eight or more years of service and those whom Ford, per the WSJ article, “has defined as demonstrating a pattern of declining performance.”

Determining “poor performance”

The idea of assessing the performance of (willing) workers, whether good or bad, separate from the system in which they work, is a management trap. The lessons of Dr. Deming’s Red Bead Experiment, with bowls of thousands of red and white beads, help managers avoid that trap. As Dr. Deming educated and entertained (or, perhaps, edutained) thousands of attendees around the world in his Four Day Seminars, equipped with his paddle and beads, his aim was to create a moment of enlightenment; the number of red or white beads in each draw of the paddle is a measure of the performance of the system, including the willing worker, not one separate from them. A reference to the “declining performance” (of the workers) is a reminder that Ford’s “talent-management” policy, as well as the WSJ reporting, appears to be stuck in the orbit of overlooking the system in which the workers operate, one controlled by management.

Could it be that these workers, and many others, are doing their best in a bad system? Needless to say, the same managers have found themselves adjusting quickly to the future of electric cars.

Doing the wrong thing right.

In appreciation of John Hunter’s “layoffs” blog, if layoffs are a failure of management, and, if the declining performance of members of their workforce is also a failure of management, how is management within Ford (and elsewhere) learning to improve their own declining performance?

To borrow from Russ Ackoff, improving a “talent-management” policy that strives to improve the declining performance of the workers, absent awareness of the system in which they work, is a great example of how to do the wrong thing right. What is management to do instead? Why not begin by studying for the first time or revisiting the lessons of the Red Bead Experiment? With assistance, such a first step, perhaps with assistance from an experienced Deming coach, could begin to transform their needs assessment from one of reversing a decline in the performance of the workers to one of a need to improve how management can better contribute to the performance of the overall system, one which includes themselves and all workers.  Dr. Deming’s System of Profound Knowledge can provide a strong foundation for shifting the old economics of “talent management” to the new economics of leading with a systems view.

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1 Ford has made moves to streamline its white-collar workforce to slash costs by about $3 billion annually by 2026.  Wall Street Journal, October 31, 2022

1 thought on “Looking at Layoffs Through the Deming Lens”

  1. Has always stuck with me- this notion that the system, owned by management, is the key place to look when the numbers aren’t “adding up”. (Corollary also true – changed systems change performance)

    At the same time, I’ve encountered very few managers who take this view, rather choosing to point anywhere but the mirror.

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