Deming's critique of Management by Objectives (MBO), performance appraisals, merit ratings, and numerical targets constitutes one of his most radical and enduring arguments. Points 11 and 12 of the-14-points-for-management address this directly: Point 11 calls for eliminating numerical quotas for the workforce and numerical goals for management, while Point 12 demands removing barriers that rob people of pride of workmanship, including abolishing the annual merit rating system. In out-of-the-crisis and later in the-new-economics-for-industry-government-education, Deming mounted a sustained assault on the entire apparatus of individual performance management.
The argument rests on statistical foundations from walter-a-shewhart's work and Deming's own understanding of common-cause-vs-special-cause-variation. Most variation in individual performance is caused by the system — the processes, tools, training, materials, and management decisions that define how work is done. Deming estimated that 94% of problems are system problems, which only management can fix. Rating individuals for variation caused by the system is statistically invalid: it attributes to people what belongs to the process. Worse, it is destructive: it creates fear, fosters internal competition, discourages cooperation, and drives gaming behavior.
Numerical targets and quotas have a similar pathology. A target without a method is meaningless — if management knew how to achieve the target, they would already be doing it. Setting a target without providing the means to reach it forces workers to choose between meeting the number (by any means, including cutting corners, fudging data, or sacrificing quality) and honest reporting. This dynamic destroys appreciation-for-a-system by fragmenting organizational effort into individual competitions. The result is suboptimization: each person or department optimizes for their own metric at the expense of the whole.
Deming's critique was among the most controversial aspects of his teaching during the four-day-management-seminars, as it struck at practices deeply embedded in American corporate culture. Peter Drucker's MBO framework had become near-universal in American management. Deming argued that MBO was not merely ineffective but actively harmful — a symptom of the prevailing management philosophy that treated workers as interchangeable components to be motivated by extrinsic rewards and punishments. The alternative Deming proposed was management's obligation to improve the system, develop intrinsic motivation, and foster joy in work — themes he developed fully in the system-of-profound-knowledge.