Stack Ranking Has an Expiration Date

A big Thank You! to Simon G for the following comment:

Hi Mini

First, congrats on being the only person I have found so far who has wondered about the fuzziness of Ray's comments relating to the Business Division. As a Navision reseller, it troubles me that the ERP side of things isn't yet clarified in Ray's mind.

Second, have a look at a book review on rank-yank:

http://hbswk.hbs.edu/item.jhtml?id=5091&t=organizations

It both defends and denigrates it

So the link is to an article of of the Harvard Business School entitled: Forced Ranking: Making Performance Management Work. The article is by Dick Grote, who has a new book out about stack ranking / rank and yank, and is well worth a read. Going through the article, Grote first lays down the reason why a company would want to stack rank: a company could be at risk of evaluation inflation, misrepresentation of true results, and bad calibration between groups. The meat of the article is to review a mathematical model study done for stank ranking, where 10% of the employees are fired every year (sort of The Sims Rank and Yank edition). Given this model, the company became healthier and more productive. But.

First "but": a 10% dismissal rate seems to be optimal. 5% is not. And whatever mythical 6% firing rate Microsoft is doing is not even throughout the company but rather clusters of RIFs. So while we cling to stack ranking, we are not using it properly. 10% of every organization needs to go every year to make room for better hires. If you believe in that sort of thing being good and all.

Second "but": stack ranking does not work as a perpetual performance appraisal system. It's good for five years, and then you need to move on. Snippet:

Finally, for many years I have argued that for most companies, forced ranking systems should be used for only a few years and then, once the obvious and immediate benefits have been achieved, replaced with other talent management initiatives. While some companies have been successful in using their forced ranking system for decades, I find that most organizations are better served by implementing a forced ranking system as a short-term initiative. Scullen and his fellow researchers confirm that advice.

Great! I'd say it's time for Microsoft to move on. The article tries to be fair in addressing the issues folks might have with stack ranking but just glances off of the morale issue and the impact of personal success is more important than group / product success.

The article also has a good idea about management stack ranking that, as long as we have stack ranking, I hope gets put to good use:

A forced ranking procedure forces managers to think in far greater depth about the quality of talent in their unit than conventional performance appraisal systems typically require, and their ability to describe and verbalize their assessments provides a good indicator of a critical aspect of their leadership ability.

Manager's contribution to honestly stack ranking their reports should feed into their own stack ranking given that it provides a good insight into a key aspect of their management skills. Can they readily describe all the pros and cons of their reports?

So, Tamara: think we can get Grote to come in if he's out and about doing a book tour in the area?

Next up: lots of commenters have complained about Burgum. One celebrated his being sent out to the pasture but another followed up, with the quick summary of:

And considering that he gets to be Chairman now versus [deservedly] being fired, I'd call that being put out to stud vs pasture. Here was a golden opp for Gates/Ballmer to show that accountability was going to be demanded at the top not just the bottom. Instead, they send exactly the opposite message - business as usual. The guys at Salesforce.com, Rightnow, etc. must be laughing their asses off...

Some folks talk about Alchin and say to me, "Well, you know he's being pushed out of the company because of his performance." And I say, "No, I don't know that. All I know is that he's leaving to take care of his health and that Steve Ballmer is really bummed to see him go." I think of the re-org webcast. If Steve is really pushing out Alchin, then I all I can say is he's the biggest dork in the world for being on stage to say he's sad to see him go. Same thing with Burgum. If this is supposed to be a message of accountability, don't enshroud it within fake regret.

Another interesting comment:

I have been reading this blog since I was terminated in September from MBS. [...] For those of you that still work at Microsoft, you must realize that a huge plan is in progress to downsize Microsoft, especially middle management. For example, does the company still need 7 CFOs for 3 business divisions? A major overhaul and purging is not out of the question.

If you want to prepare for what is coming down (i.e. especially if you are one of those General Managers reporting into another General Manager or anyone significant inside of MBS) you need to read a book called Corporate Confidential by Cynthia Shapiro. She does consulting with Microsoft management and employees. Her book can show you how to survive and what to look for as Microsoft begins the largest purging of management ever!

The book was excerpted a couple of times in the Seattle Times Sunday paper. Yes, if you're playing the review game at Microsoft, this might be a good book to have during disruptive times. The chapter four extract is especially tantalizing: going from invisible to indispensable.

And finally, as for stock: sure, Google strolled past $400 today like it's just a little milestone, but at the same time, we closed at almost $28! I guess Steve Ballmer doesn't care since, you know, we (meaning SteveB) don't measure our performance by our stock performance.