Deming Lens #41 - Dr. W. Edwards Deming Guide to Layoffs - a podcast by The W. Edwards Deming Institute

In our 41st "Deming Lens" episode, host Tripp Babbitt shares his interpretation of wide-ranging aspects and implications of Dr. Deming's theory of management. This month he looks at the book, The Reckoning" and some of the implications of it.

Show Notes

[00:00:14]
Deming Lens - Episode 41

[00:00:29]
Episode 41 - Dr. Deming's Guide to Layoffs

[00:02:43]
Ackoff on Layoffs

[00:03:38]
The Larger Social System

[00:04:23]
Capitalism, Socialism and Communism

[00:05:42]
Dr. Deming's 5 Steps to Layoffs

[00:06:34]
Are Leaders Cutting Salaries Before Layoffs?

 

 

Transcript

Tripp Babbitt: [00:00:14] The forty-first episode of the Deming Lens will give you Dr. Deming's guide to layoffs.

 

Tripp Babbitt: [00:00:29] Hi, I'm Tripp Babbitt, host of the Deming Institute podcast, and in this Deming lens, I am going to give you Dr. Deming's guide for layoffs. And this may sound a little strange to a lot of the listeners out there. I've talked about this before in Deming Lens 27. We're talking about point twelve, remove barriers that rob people of pride, of workmanship. And this is a subject that I think is timely, especially at the moment where we're going to be discussing what to do when your company faces reduced revenue and it doesn't really matter the size of your organization. What does matter is the way that you go about handling this decline in revenue at your organization. So. I think I'm going to first start out and talk about what different people have said in terms of layoffs, so Russell Ackoff, for instance, talked about layoffs or downsizing or whatever you want, irresponsible and ineffective because it treats symptoms instead of causes.

 

Tripp Babbitt: [00:01:59] And I think that, you know, in normal times, we would probably say, yeah, that makes a lot of sense to me. And companies do this. They somehow accumulate a large group of people that's excessive and they use a formula.

 

Tripp Babbitt: [00:02:18] I think many of us have probably heard it before, but they believe that the corporation's primary responsibility is to shareholders and that they must be profitable and that any excess employees remove profit, remove or reduce the profit in an organization and therefore they have to make cuts to employees.

 

Tripp Babbitt: [00:02:43] And I have found that and been part of on both sides of the sea with regards to layoffs, laying off large groups of people, as well as being part of layoffs in organizations. And I think what especially Russell Ackoff talks about is that there is a larger social system that is out there now. Fundamentally, it's hard enough for people to grasp synthetic thinking and understand that their department or their team or their unit is a part of an organization. And there's a lot placed on the individual, the unit, the team to department to perform and often the suboptimized system because we're trying to maximize the pieces.

 

Tripp Babbitt: [00:03:38] And we know from Russell Ackoff that the sum of the parts or the performance of the organization is greater than the sum of the parts. And this is at the heart of some of these larger social systems that are at work. So we have to understand, first of all, that a system we look at, an organization departments only a part of a broader system, but even that corporation as part of a larger social system and, you know, part of that social system is the reason for it is to create and maintain productive employment in that social system.

 

Tripp Babbitt: [00:04:23] And this gets into so many different things that we see going on in our society today, especially here in the United States. Communism and socialism have not demonstrated ability to produce enough wealth to make possible an acceptable standard of living. And many people have talked about that. We have a whole group of people in the in the US that are now believe socialism is better than capitalism. And on the cover side, capitalistic societies have not distributed enough wealth equitably. And that is the problem is this maldistribution of wealth is a threat to capitalism as insufficient production of wealth is to socialism and communism. And so this is kind of the conundrum that we face today in society. And I'm afraid we're not addressing that well enough. I've gone through a number of articles and it takes me back every time to what Dr. Deming said about layoffs and downsizing, that if you face a decline, that there's five steps in essence that you need to take.

 

Tripp Babbitt: [00:05:42] And the first is that you cut the corporate dividends or you cut them out. The second is salaries and bonuses of top management are cut. The third is management. Salaries of top to middle management are cut. The fourth step is rank and file are asked to accept pay up pay cuts. And the fifth is reduction in workforce through attrition, voluntary discharge and early retirement.

 

Tripp Babbitt: [00:06:16] Now, I'm not going to get into naming companies, as I've been asked to by the Deming Institute, not to shame companies, but you can pretty much look this stuff up on your own with regards to which companies are doing the right thing and which aren't.

 

Tripp Babbitt: [00:06:34] And some of them are doing it and token fashion. In other words, you're seeing some CEOs of very large organizations that have already made massive errors in doing stock buybacks and increasing their dividend so that they would get their pay up because a lot of their pay is dependent upon what the stock price is.

 

Tripp Babbitt: [00:06:59] So.Even though they may say, look, I'm going to reduce my three million dollar a year salary by 20 percent, then that would be six hundred thousand dollars.

 

Tripp Babbitt: [00:07:15] But if they're getting 20 million dollars based upon the stock price and some of the other things, even though their revenues are down, the stock price is up, as we've seen here in the last six months, things have recovered, at least in the financial markets. They are in this scenario where, oh, I get it. Six hundred thousand dollar reduction of my 20 million dollar salary. Now, this is very token to me and this does not follow the formula doesn't make you a leader. Matter of fact, it doesn't make you a leader. So in order to be a leader, you're going to have to forgo. Your salary to some degree, and there are people out here, you know, if I have to look through the list of names of organizations here, they are doing very well as individuals while society falters.

 

Tripp Babbitt: [00:08:18] And this is obviously a big subject. And some of the things that I just talked about with regards to capitalist societies is that we're not distributing the wealth equitably. And I don't believe that the answer is personally, I don't believe that the answer is socialism or communism. But we need to be after the greater good in society by doing what's right in times of crisis as opposed to what's right for me. So this is this is the conundrum that we face today.

 

Tripp Babbitt: [00:08:57] And moving forward, we're going to need to find ways to more equitable, equitably distribute wealth in organizations that it really has to start at that level.

 

Tripp Babbitt: [00:09:09] Once the government enter, enters in wealth isn't distributed in an effective manner at that level. So then we begin to lose things like innovation and some of the things, good things that come along with capitalist societies. So this is this is today's problem. I mean, dead. And Dr. Deming laid out, I think, a fair formula for organizations. You have to look larger than yourself. Your constancy of purpose has to include social responsibility and that your organization as part of a larger social system. And I think that that is better done voluntarily rather than having the government try and save people that aren't willing to do the right thing. It makes you question the types of leaders that we have and some of these organizations, especially when they're doing token actions and then that saying there aren't some out there that are doing the right thing, but making layoffs in Dr. Deming's formula by by walking through his five step process of cut the corporate dividends or cut them out. Salaries and bonuses of top management cut. Management salaries of top to middle management are cut, rank and file are then asked to accept pay cut cuts and the last thing, reduction in workforce through attrition and voluntary voluntary discharge and early retirement. These are timeless, especially in a capitalist society, that we maintain this larger social system. That's my message for this week ending September 30th, 2020.

 

Tripp Babbitt: [00:11:10] Hi, this is Tripp Babbitt. One way that you can help the Deming Institute and this podcast is by providing a rating on Apple podcasts. If you have additional comments, you can reach me at tripp@deming.org.

 

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