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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

November 13, 2013 at 10:33 AM

The death of stack-ranking: About time

If Microsoft begins a turnaround now to regain its innovative edge, the hinge won’t be the retirement of Steve Ballmer or any new device. It will be the elimination of the employee evaluation system known as stack-ranking.

This was the origin of the poisonous culture that has damaged the company, setting employee against employee, department against department.

Far from providing an honest evaluation of performance combined with benchmarks and coaching to improve, it required that a certain percentage of employees be deemed falling behind the bell curve — as in, find another job — even if they were excellent. Kurt Eichenwald described it in his influential Vanity Fair article, “Microsoft’s Lost Decade”:

Supposing Microsoft had managed to hire technology’s top players into a single unit before they made their names elsewhere—Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon—regardless of performance, under one of the iterations of stack ranking, two of them would have to be rated as below average, with one deemed disastrous.

In an interview earlier this year with my colleague Janet I Tu, Ballmer seemed to begin backing away from the system as part of the company’s reorganization.

Still, he said, “I think everybody wants to work in a high-performance culture where we reward people who are doing fantastic work, and we help people who are having a hard time find something else to do.”

Under stack-ranking, that had meant helping people find the door, whether they were doing good work or not. This harkens back to a management fad of the 1980s. On the surface, it was designed to create “churn,” kind of a creative destruction of a company’s workforce. It also produced fear and a poisonous culture.

It is not as if every successful company needs to be gentle and nurturing. Amazon’s “deliberately adversarial culture” has been widely reported.

On the other hand, as a manager I was involved in creating employee evaluation systems for several companies. What is most important: Honesty, transparency, alignment of individual performance with company goals, and managers who can coach for high performance.

Maybe stack-ranking might not have mattered as much when Microsoft was minting many employees as millionaires. But to put it in as the company reached maturity, was picking up the pieces from the antitrust battle and facing a new competitive landscape was folly.

And BillG owns this one as much as SteveB. Let’s hope some lessons have been learned.

And Don’t Miss: The complex anatomy of health care in the United States | The Incidental Economist

Today’s Econ Haiku:

Just one big airline

Obama’s no Trust Buster

Speak softly, no stick

Comments | More in Microsoft | Topics: Bill Gates, Stack-ranking, Steve Ballmer

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