Most Americans never heard of him.  His effect on the world economy after World War II has arguably been greater than any other person anywhere.  His impact on business has been profound, yet he was a man without a business background.  He revolutionized business management, but his main career wasn’t in business at all.  And although he was an American, his ideas were laughed out of corporate offices in America from coast to coast.  He was a career statistician for the Army Corps of Engineers and his ideas about management changed the world.  His name was W. Edwards Deming.


W. Edwards Deming

Deming was a visionary who understood that businesses in the post war world would need to focus on quality.  But after the second World War ended, American manufacturers were busy keeping up with the world’s demand for our products.  With the European and Asian manufacturing infrastructure obliterated by repeated bombings, quality was not on the minds of corporate America.  In fairness, why would it be?  Quality was obviously not affecting demand.  Corporate management thought, “why devote resources to fix something that isn’t broken?”

Rejected by American businessmen, Deming left the United States and traveled to occupied Japan where he taught Japanese manufacturers to focus on quality.  His efforts were so successful, today, the Japanese industrial award for quality is called The Deming Prize.

While Deming was teaching the Japanese about quality, American businesses continued to ignore it.  As the years passed, Japanese quality improved while American manufacturing grew complacent.  Then, after a couple of oil shocks, including an OPEC embargo, American car buyers were looking for more economical vehicles and American car makers were caught totally flat footed.  Better engineered Japanese cars flooded the US markets, swept up by eager buyers , as US automakers were left with a clearly inferior product.  It would be a full generation, another twenty years before American automakers were competitive with Honda, Toyota and others.

When asked, the Japanese credit Deming with their ascendancy as a world manufacturing powerhouse.  It’s no exaggeration.  Upon entering the headquarters of Toyota, there are three portraits in the main lobby.  One portrait is of the current chairman of Toyota.  Next to it, is a slightly larger portrait of Toyota’s founder.  And next to the founder, taking up nearly half of the wall is a giant portrait of W. Edwards Deming.

Deming’s focus wasn’t only on quality.  He revolutionized business management with ideas about alternatives to the merit system of pay, new ways to empower employees to make decisions that affect the way they do their jobs, creating true accountability, teamwork, compensation and evaluations.  Deming’s life work has benefited every person alive today. Every time you use a product manufactured in Japan, you know it is a high quality product.   It wasn't always that way.  Truly, it was a far cry from days when “Made in Japan” was a synonym for junk.  And when competition forced our own companies to adopt Deming’s ideas, we all benefited.

Near the end of his life, Deming spoke publicly at business schools.  Even though he was advancing in age at 90, he did a magnificent job making his pitch, speaking for well over an hour and a half.

Many who heard him became instant converts and even evangelists of his ideas.  Dr. Deming was a staunch opponent of the merit system of pay.  Many, if not most Americans would view that as sacrilege.  But after one reads why Dr. Deming opposed the merit system, his reasoning is profound and true!

It's not that Deming is against rewarding merit. It's that merit systems of pay can only work when a company is growing.

Think about it.

Let's say you work in a company that has the merit system. It's typically a non-union shop and you're on a salary. You have a performance plan. You did everything you were asked to do and then some. But in your annual review, you don't get the rating you were expecting or your annual increase is too little or non-existent and you can't understand why.

Deming explained why.

You see, the dirty little secret about the merit system is that it doesn't work in practice for most businesses. Why? Because once a business slows or stops growing top line revenue, the merit system creates an institutional and cultural bias within the business on the part of the employee to expect wage and benefit increases irrespective of business performance results.

This is unsustainable.

As payrolls grow, pressure on the bottom line profit increases, having a direct impact on competitiveness in pricing and the availability of capital for reinvestment. Ultimately, the workforce must be reduced. Bring on the pain. Deming believed the corporate culture encouraged by the merit system was responsible for an untold number of lost jobs.

Eventually, management is faced with a choice. They an either scrap the merit system, a radical move, or they can distort the merit system to manage wage and benefit increases more selectively and Deming would say, in a more discriminatory fashion.

In other words, managers will use subjective judgments to rate performance rather than objective, fairer measures.  Here's how it works:

The company budgets an average increase in wages of 3%.  To administer that balance overall and to manage incentives, some employees will be given more than 3% and others will get less or none at all based on performance criteria. But instead of using the most objective criteria, managers will be expected to pass over some for increases in order to stay within budget.

Your performance almost doesn't figure into the equation unless it's very poor. What the company can afford is the most important factor.  The merit system eventually leaves employees wondering what they did wrong when they are passed over. The fact is, they may have done nothing wrong.  Business management just doesn't believe they have a better way of managing the issue.  Employees become confused and begin to distrust whether management is treating them fairly.

As an alternative, Deming proposed that compensation systems should be directly linked to business performance. Employees in companies with losses should not be taught to expect wage increases.  Conversely however, employees in companies with record profits should expect increases.  The corporate culture needs to encourage a sense of stake holding on the part of employees in the business. The merit system militates against that.

It is poisonous to the business for employees to expect increases when the business is doing poorly. The attitude of "well, I did my job" is an attitude that will result in eventual mass layoff.  Deming sought to make labor and management partners in a way that a union workplace only hopes to be.

Interestingly,  Demings ideas were employed by Ford in their Taurus division, which became the most profitable division for Ford for many years.