I don’t want to say “there’s a big buzz on the internet” about a subject you probably haven’t heard of unless you read business news. If you do, odds are you already know that the August edition of Vanity Fair will have a major article by Kurt Eichenwald called “Microsoft’s Lost Decade.”
Vanity Fair Daily published a short teaser/summary of it, Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant:
Analyzing one of American corporate history’s greatest mysteries—the lost decade of Microsoft—two-time George Polk Award winner (and V.F.’s newest contributing editor) Kurt Eichenwald traces the “astonishingly foolish management decisions” at the company that “could serve as a business-school case study on the pitfalls of success.” Relying on dozens of interviews and internal corporate records—including e-mails between executives at the company’s highest ranks—Eichenwald offers an unprecedented view of life inside Microsoft during the reign of its current chief executive, Steve Ballmer, in the August issue. Today, a single Apple product—the iPhone—generates more revenue than all of Microsoft’s wares combined.This strikes me as magical thinking: you make your company more competitive by making its internal departments and individual employees compete with each other. Wherever it comes from, IMO it’s profoundly dysfunctional. Business is about getting work done — unless you’re in a line of business where that work consists of figuring out who’s a star and rewarding them, which is rare.
Eichenwald’s conversations reveal that a management system known as “stack ranking”—a program that forces every unit to declare a certain percentage of employees as top performers, good performers, average, and poor—effectively crippled Microsoft’s ability to innovate. “Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees,” Eichenwald writes. “If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”
Companies and departments are by nature internally cooperative clusters of people who are working on the same projects and/or issues. Turning employee evaluations into a game of winners and losers and stars, and employees into competing gameplayers, is not a good way to get work done.
Another way to look at stack ranking is as a mechanism for concentrating rewards on the people most likely to be hired away, or to be tough competitors when employed elsewhere. I can see how that might appeal to executives who are into the theory that you have to pay inflated salaries to get top-gun executives, which has been the basic rationale for the ongoing inflation of executive salaries. I can’t construe that as a counterargument to my opinion that it’s not a good way to get work done.
The “grading on the curve” aspect of it is also defective. Basic managment theory limits the number of employees that can report directly to a single boss. Any department that’s small enough for everyone in it to be reporting to the same boss is too small a sample for that boss to be grading them on a rigid 20-70-10 curve.
Besides, as any kid who got curve-graded in school can tell you, it’s no guarantee of high-quality work. If all the students in a curve-graded class slack off, they don’t all get a D or F. Instead, it gets easier to get a B. If all but a few students slack off, it’s a good bet that the ones who don’t will get an A. Now translate that into the essentially cooperative workplace. Is it really a good idea to reward employees when their co-workers fail?
(If you know in advance that 10% of the employees in your department are going to get fired, one logical answer is to always keep a few redshirts around. This frees up the rest of you to stop worrying, and work on the stuff you were hired to do. Any good work you get out of the redshirts is pure profit.)
Stack ranking also fails to take into account what kind of work is being done. Sometimes fast-moving highly profitable achievements rest on an earlier foundation of slow incremental work on less-than-tractable problems. It’s not unusual for a department to do both sorts of work. Which kind gets rewarded for being productive? Which gets the bad reviews and firings?
I’ll absolutely question the use of stack ranking as a motivational device. Doing good work, looking ahead, helping to create a strong, smart organization, and refraining from doing evil should be enough to get any employee a good annual review. If what it gets them is a note in their permanent record saying it wasn’t enough, and they should have done more, they might feel motivated to try harder next year, and in a few cases may try harder the year after that; but mostly not, and sooner or later they’re all going to lose heart. People want to care about their work. If you break their faith in their job, it’s hard to win it back.
It’s a miserable system for managers, too. Say you’ve put together a great department — competent, well assorted, good work proprioception, with high productivity and high morale. Now impose a rating system that tells you that your department manages its people neither better nor worse than any other department. Be forced to label 20% of your people winners, without reference to the rest of the department’s work that makes theirs possible. Label 70% of them as timeservers and underachievers, no better than they should be. Label 10% of them failures, or even fire them, when you’ve spent all year trying to help them be good at their jobs.
I’ve managed employees. Having to do that to them would be a breach of trust. You’re the mechanism that applies a dishonest ranking system that hurts them. If an employee doesn’t already feel their performance warranted a bad review, there’s no satisfactory way you can explain to them why you left them out of the winning 20%, or the reasonably safe 70%. You may protest that the ranking system is flawed and arbitrary, but you’re still the person who arbitrarily ranked them.
Some articles I found interesting:
Erika Andersen at Forbes: The Management Approach Guaranteed To Wreck Your Best People
IDC Analysts at Computerworld UK: Microsoft, Big Data and statistical idiocy. Stack rankings: An example of the misunderstanding and misuse of statistics
Eric Novinson at The Motley Fool: Stack Ranking and Value Traps
Julie Bort in Business Insider: Microsoft Isn’t The Only Tech Company Doing Forced Employee Ranking
Marco Chiapetta/Microsoft Insights at Network World: Microsoft’s ‘Lost Decade’ sensationalizes common issues among large corporations
Keith K. @46 recommends an interesting link:
One genuine question I have is how well [stack ranking] works with certain modifications. At Valve**, they use stack ranking, but it’s done by peers, not managers. I wonder if this changes the dynamic at all. Also, Valve explicitly cites teamwork as one of the components measured for stack ranking. I wonder if this changes the dynamic enough to erase the downsides of stack ranking.I’ve read some pretty darn amusing internal documents, but the Valve Handbook for New Employees is a goodie. Have a look. I’ve always taken it as an article of faith that your co-workers know you. I’m now chewing on Valve’s theory that you can run a company on that basis.
**The game company responsible for Portal, among other classics. If you haven’t seen it, look at their employee handbook, which describes a ridiculous democratic utopia with no set internal structure. It is, by far, the most entertaining internal company document I have ever read.
Heresiarch @57 on blind competitive pressure as an evolutionary force:
One of the things it has consistently produced … is cooperation. Time and again, it’s turned out that in a cutthroat take-no-prisoners dog-eat-dog existential battle of all against all, the most winningest strategy is working together. What these competition-inducing schemes to improve upon the inefficiency of group production constantly miss is that group production originates in the first instance by out-competing everything else. Cooperation is where competition leads. Trying to use blind evolution to improve upon cooperative systems is like noticing that great square wheel you made is getting rounded on the corners from wear, and setting about sharpening them back up.(Emphasis mine.)