Did stacked ranking stifle innovation at Microsoft?

by Saba Software | Posted | Performance Management

Did stacked ranking stifle innovation at Microsoft?

This whole discussion around the departure of Microsoft CEO Steve Ballmer and the technology giant’s use of stacked ranking has really put the white elephant of stacked ranking on the HR table.

On the one hand, stacked ranking is a great way to identify your high and low performers and to prevent that dreaded “grade creep” when evaluating employee performance. It’s also obviously helpful to know who your high performers are so you can take steps to keep them.

The debate here shouldn’t be centered on the pros and cons of stacked ranking so much as the misuse of it in the performance management process.

As Laurie Ruettimann pointed out on Tuesday, all versions of performance management are variations of forced ranking and stacked ranking.

Where the risk lies with stacked ranking is when companies like Microsoft rely on it to determine compensation and promotions, and to dump poor performers (either by making them someone else’s problem or by terminating them).

Really stacked ranking is a tool. One of many that should be used to identify high and low performers of course. But the key is that it should also be used to identify development opportunities for both high and low performers and to proactively manage employee performance (think timely coaching and feedback).

There will always be low performers but if you’ve provided a development plan and ongoing coaching and feedback and if there’s still low performance…then yes, a tough decision is needed.

It doesn’t seem like that’s how stacked ranking is used at Microsoft.

On Slate.com, former Microsoft employee, David Auerbach, discusses how stacked ranking impacted the work culture at Microsoft:

“The stack rank was harmful. It served as an incentive not to join high-quality groups, because you’d be that much more likely to fall low in the stack rank. Better to join a weak group where you’d be the star, and then coast. Maybe the executives thought this would help strong people lift up weak teams. It never worked that way.”

Auerback also went on to discuss how this approach didn’t allow for “real ratings” because Microsoft managers were forced to alter the ratings of some employees in order to create the right “distribution” of scores.

If Microsoft employees are more focused on ensuring they look like a star versus ensuring they are performing and developing, how does that help the software giant be innovative?

I’ve never worked at Microsoft but I can make a pretty educated guess that this technique fostered a competitive, finger-pointing culture, one that encourages prima donnas rather than team players.

A 2013 PwC Pulse Survey of 246 CEOs around the globe reveals that 97% of CEOs see innovation as a top priority for their business, with 37% of them stating they need to be a ‘leader’ in this area. A culture that impedes knowledge sharing, collaboration and high performance is not an innovative culture.

Steve Ballmer has been criticized for not leading Microsoft to ensure it keeps pace with major technology trends. Now that he’s retiring, this is the perfect opportunity for Microsoft to evaluate the flaws in the company’s performance management process and take steps to address them.

Not only that, all this stacked ranking buzz is the perfect opportunity for any organization to take a step back and evaluate flaws in their own processes.

Here are a number of ways to do that.

  • Ensure your company’s appraisal process supports accurate, differentiated ratings.
  • Identify and address the root cause of poor performance and take proactive steps to address it. Automatically firing the bottom x% of performers isn’t the answer.
  • Gather feedback from multiple sources to support better differentiated ratings (use 360 degree multirater feedback, build in several layers of approvals into your appraisal process, or do both).
  • Don’t just put your performance appraisals in the drawer once the process is complete. Use the data to identify your high performers. Consider implementing a pay-for-performance program to more fairly reward your workforce.
  • Identify, reward and support the career development of your top performers — it’s a key step to retaining them.
  • Aggregate the results of your performance appraisal process and analyze them. By consolidating the ratings, then “slicing and dicing” the results, by group, job function, manager, etc. you can spot trends and take steps to correct any inequities or problems.

If anything, the hullabaloo around Microsoft’s stacked ranking process should serve as a reminder for all of us to back up and examine what the value of the review process is to our business and to our employees. The value in performance management for the business should be improved results, and that happens through the ongoing development of our people.

The reason we review competencies is to identify areas for development. When we let the performance management process become solely focused on rating and ranking only, it takes away from the development focus that drives innovation and increased business results.

Your turn: What’s your take on the value of stacked ranking? How do you weigh the pros and cons of it?

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