FairSetup, an Alternative to Stacked Ranking – Forbes, TechCrunch, Vanity Fair on Downfall of Microsoft

Pardon my language, but forced ranking sucks.  It’s a terrible terrible idea and whoever came up with it, unless this was a lesser evil, should have a red cone of shame deposited on his or her head.  In a recent story on TechCrunch “Stacked Ranking“, Steve Gillmor stated:

Stack ranking, it turns out, is a cancer eating away at Microsoft’s ability to save itself.

And that article, along with a Forbes article The Terrible Management Technique that Cost Microsoft Its Creativity, was responding to a piece in Vanity Fair called Microsoft’s Lost Decade.  Here is a chilling quote from the article:

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. The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.

The disaster is what happens when you have someone who always receives a poor evaluation:

… people do everything they can to stay out of the bottom bucket.

So you have one bad practice compounded by another: 6 month evaluations:

Worse, because the reviews came every six months, employees and their supervisors—who were also ranked—focused on their short-term performance, rather than on longer efforts to innovate.

And then it gets ridiculous.  Because teams are parts of larger units, managers can duke things out and fight for their employees:

On the first day, the supervisors—as many as 30—gather in a single conference room. Blinds are drawn; doors are closed. A grid containing possible rankings is put up—sometimes on a whiteboard, sometimes on a poster board tacked to the wall—and everyone breaks out Post-it notes. Names of team members are scribbled on the notes, then each manager takes a turn placing the slips of paper into the grid boxes. Usually, though, the numbers don’t work on the first go-round. That’s when the haggling begins.

And the article ends on a very interesting note:

In Walter Isaacson’s authorized biography Steve Jobs, Jobs acknowledged Ballmer’s role in Microsoft’s problems: “The company starts valuing the great salesmen, because they’re the ones who can move the needle on revenues, not the product engineers and designers. So the salespeople end up running the company.… [Then] the product guys don’t matter so much, and a lot of them just turn off. It happened at Apple when [John] Sculley came in, which was my fault, and it happened when Ballmer took over at Microsoft. Apple was lucky and it rebounded, but I don’t think anything will change at Microsoft as long as Ballmer is running it.”

Most interesting, however, is that Jobs put the ultimate blame on Bill Gates: “They were never as ambitious product-wise as they should have been. Bill likes to portray himself as a man of the product, but he’s really not. He’s a businessperson. Winning business was more important than making great products. Microsoft never had the humanities and liberal arts in its DNA.”

So, forced ranking brought down Microsoft.  That may be true, but really brought down Microsoft were the consequences of this tool: the politics, perception of unfairness, loss of work ethic and love for the product.

This overlaps very strongly with In Search of Excellence – rational management is a valuable tool, but one can’t forget about the fact that, at the end of the day, any company is built out of people and people want to be treated fairly, with respect.  There is nothing wrong with competition, but artificially forcing people to compete against each other in a way that doesn’t respect their positions is tremendously damaging.

FairSetup is an alternative to stacked ranking, but what’s perhaps more important is the following:

1) At Microsoft there were 6 month evaluations, which resulted in focus on the short-term.  FairSetup engages in regular ongoing collection of data around performance.

2) At Microsoft, stack ranking was done by managers in a manner that was not transparent to employees.  Under FairSetup, team members are engaged in the evaluation process and understand the outcomes.

From an intuitive standpoint, in order for stacked ranking to work, the team really needs to be given significant upside and needs to agree that the evaluations are fair with exceptions being made on a regular basis when fair ranking is not transparent.  That said, it just seems like a silly idea.  If you are hiring well, nobody should be at the bottom of the curve and good managers/entrepreneurs pride themselves on low churn – something that becomes a necessity in stacked ranking.

Still, it’s amazing to see Microsoft, once a $600 billion giant fall so quickly.

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