The system blamed for sinking Microsoft, coming soon to the UK public sector

A piece in the Slate last week blamed Microsoft’s ‘Stack Ranking’ appraisal system for much of the company’s recent decline. Stack Ranking is a variation on the ‘Rank and Yank’ process in which managers are forced to rate a certain proportion of their staff, usually 10 percent, as unsatisfactory. Depending on the culture of the organisation, these people are either put on some sort of disciplinary programme or are simply fired.

The Slate article quotes from this Vanity Fair piece which goes into Microsoft’s ‘Lost Decade’ in some depth. Here are some choice quotes:

By 2002 the by-product of bureaucracy—brutal corporate politics—had reared its head at Microsoft. And, current and former executives said, each year the intensity and destructiveness of the game playing grew worse as employees struggled to beat out their co-workers for promotions, bonuses, or just survival.

Microsoft’s managers, intentionally or not, pumped up the volume on the viciousness. What emerged—when combined with the bitterness about financial disparities among employees, the slow pace of development, and the power of the Windows and Office divisions to kill innovation—was a toxic stew of internal antagonism and warfare.

At the center of the cultural problems was a management system called “stack ranking.” 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.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

For that reason, executives said, a lot of Microsoft superstars did everything they could to avoid working alongside other top-notch developers, out of fear that they would be hurt in the rankings. And the reviews had real-world consequences: those at the top received bonuses and promotions; those at the bottom usually received no cash or were shown the door.

“The behavior this engenders, people do everything they can to stay out of the bottom bucket,” one Microsoft engineer said. “People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings.”

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..

“I was told in almost every review that the political game was always important for my career development,” said Brian Cody, a former Microsoft engineer. “It was always much more on ‘Let’s work on the political game’ than on improving my actual performance.”

Like other employees I interviewed, Cody said that the reality of the corporate culture slowed everything down. “It got to the point where I was second-guessing everything I was doing,” he said. “Whenever I had a question for some other team, instead of going to the developer who had the answer, I would first touch base with that developer’s manager, so that he knew what I was working on. That was the only way to be visible to other managers, which you needed for the review.”

I asked Cody whether his review was ever based on the quality of his work. He paused for a very long time. “It was always much less about how I could become a better engineer and much more about my need to improve my visibility among other managers.”

In the end, the stack-ranking system crippled the ability to innovate at Microsoft, executives said. “I wanted to build a team of people who would work together and whose only focus would be on making great software,” said Bill Hill, the former manager. “But you can’t do that at Microsoft.”

Gore Vidal is supposed to have said, “It is not enough to succeed. Others must fail.” Nowhere is that more true than under a forced ranking system. If the bottom 10 per cent are being thrown out, your performance relative to others in your team becomes paramount. There are two ways to stay out of the bottom group. Firstly, perform well (or at least appear to) and make sure everybody knows it. Secondly, stick the knife into a few other people just to make sure. Even the most scrupulous employees must be tempted to do a bit of both.

I discussed the pros and cons of ‘Rank and Yank’ in an earlier post. There is very little research evidence on it but management opinion seems to be moving against it, even in the US. These days, it’s more common to find articles in the business press arguing against it than for it.

Some people have always opposed forced ranking on ethical grounds but now even the bread-heads are coming out against it on the grounds that it just doesn’t work. An argument I’ve heard quite often recently is that it drives away an organisation’s best performers as well as its worst. In my limited experience of forced ranking, I have seen something similar. Some very talented people say “I want no part of this” and walk.

The only argument I can see for Rank and Yank is that, in a culture where people have simply stopped managing performance, forced ranking might, might, just break that habit and push people into having the difficult conversations they should have had years ago.

I have no idea whether HMRC is such an organisation but its bosses clearly think that forced ranking can improve the department’s performance because they have just introduced it, albeit with ‘development support’ rather than the sack for the bottom 10 percent. There has been talk of using it throughout the civil service. Given the Microsoft experience, though, perhaps it’s not the best way of getting people to be honest about failure.

The task facing the civil service and the wider public sector is huge; how to redesign the state provision when costs are outstripping inflation, government debt is rising, economic growth is slow and there is a £25 billion hole in the public finances. That’s going to require some really clever thinking and, as Francis Maude says, the admission that some things have been wrong in the past. Is introducing a winners-take-all appraisal system that is being rapidly dumped by the private sector really going to help?

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10 Responses to The system blamed for sinking Microsoft, coming soon to the UK public sector

  1. Pingback: The system blamed for sinking Microsoft, coming soon to the UK public sector - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Someone I know works in UKBA (which is now moved back to wider umbrella of Home Office) and this is already in place.

    The staff find it demoralising. It does not create a nice working culture as staff are quick to pointing out weaknesses in other staff.

    One member of staff my friend knows well feels they were unfairly placed in bottom 10% especially as they were not told they were performing poorly in prior one to one meetings with their line manager. My friend suspects this person may have been picked as they were more likely to accept the rating without kicking up a fuss. This person now wishes to move on.

    My friend also has a colleague who works in a different dept. There the staff & managers they have spoken agreement to take it in turns to be in each performance bracket each year so no one is ‘poor’ 2 yrs running & everyone gets a chance to be in the top bracket.

    My friend feels that while performance management needs to be improved that this system does more harm than good.

  3. ballantine70 says:

    The three biggest challenges with stack ranking systems for me are:

    1) it is to the detriment of team working. If at the end of a year you are rewarding (and terminating) employees on the basis of an individual stack rank, you embed competition amongst members of a team, and it’s in their narrow economic interests to look out for themselves not each other. This runs the risk of teams in organisations operating at a level significantly below the sum total of their parts.

    2) it breeds a particular type of culture/person fit. If you want to fill your organisation with people whose CVs begin with the words “I’m an extremely results-focused person” then great.

    3) it assumes that you can refill the bottom 10% (or whatever) with people equal or better than the ones who have departed, at a cost equal or less to any benefit accrued.

  4. TickyW says:

    Very interesting, Rick.

  5. There are many obvious flaws in stack ranking. However, it is also used by Valve Software, one of the world’s most successful games companies. So I wonder why it hasn’t been a disaster for them. Is it because of their flat organisational structure? Is it simply that so many people want to work for Valve that it doesn’t matter who they sack, although we would expect the same to be true of Microsoft? While I agree that stack ranking is total BS, I’m not convinced that it is the primary reason for any decline in Microsoft’s position.

  6. Truth onto Power says:

    Fascinating.

  7. Truth onto Power says:

    As you have identified it is being implemented across the Civil and Public services. Over recent years we have seen a number of issues raise to the surface collecting public attention; the health service, the BBC, and I’m sure that many other departments and agencies will follow. ‘Rank and Yank’ has already been discreetly applied within one government research agency. Clearly it is important for organisations to operate efficiently, however, it is easy for a manager, of colleagues, to manipulate the efficiency of a victim, as you blog explains. The process has very sinister undertones.

    One fundamental problem is that the Civil and Public services are failing to meet their targets for staff cuts (see http://www.publicfinance.co.uk/news/2013/08/civil-service-staff-cuts-lagging-behind-target/?utm_source=Adestra&utm_medium=email&utm_term). This means that management have three options:

    OPTION 1: ‘Rank and Yank’ clearly intends to remove 10% of staff per year for alleged inefficiency (but other reasons may apply as covered in your article, or alternatively the situation may have been engineered by managers, or others (constructive dismissal)). The benefit to management is that they would not pay redundancy, whilst the process itself is no doubt intended to construct evidence to defend the organisation against tribunals. The quotation ‘Our worst enemies here are not the ignorant and the simple, however cruel; our worst enemies are the intelligent and corrupt’ is very apposite. The observations made about behaviors within the Care Quality Commission (CQC) appear to cross all departments Civil and Public departments and agencies (see http://www.cqc.org.uk/sites/default/files/media/documents/bullying_and_harassment_in_cqc_-_full_report.pdf page 15 where processes and procedures are slanted and often simply ignored). From a staff viewpoint this process will damage the victims, health, cause severe stress of the situation, ruin reputations, careers, and probably make the victim unemployable.

    OPTION 2: Sack 10% of staff every year and replace them. The management drawback here is that they would need to have a reason which would stand up in an industrial tribunal. But this would cost money when management loose. I once received such instructions from my senior managers.

    OPTION 3: Make 10% of staff redundant every year. The management drawback is that they would need to pay redundancy monies, and would not be unable to recruit new staff for a period.

    Option 1 is clearly the winner on financial grounds alone, management should behave in an ethical, and responsible way but ‘Rank and Yank’ is neither ethical or responsible. Radical reform is clearly necessary and staff support this, however, it is the executive, directors, senior/middle management managers who are making the decisions, and it is these people have created comfortable jobs for themselves and locked themselves in, hence, radical reform is unlikely. A fourth option may possibly exists and that is to cut pay to all (particularly at the senior levels where pay has increased beyond all reasonable bounds). Francis MAUD needs to see the light and understand the true source of the problems (the very people making/implementing these reforms). The system is suffering from autopoiesis. More honesty and integrity is required from all.

  8. Truth onto Power says:

    Would you believe it ‘Rank and Yank’ does not apply to senior Civil Servants … the very people who’s autopoietic behaviours block change.

  9. There are plenty of people across the UK civil service who are chronic under-performers and there is no way of currently getting rid of them. You see it every time you go into a hospital, a school or ring up the HMRC. Its absolutely right to use an environment of belt-tightening to address these people.

    This article is an interesting read showing the pitfalls of this kind of appraisal system. Echoes of the Enron culture too! However, we shouldn’t lose sight of the need for more accountability in the civil service when it comes to poor performance.

  10. Miles Nelson says:

    Stack ranking is alive and deeply unwell at HMRC. The first year has just ended and it has proved divisive and demoralising. It has little to do with actually managing poor performance and more to do with fulfilling the quota. The emphasis is now on “behaviours”, giving managers a subjective reason to mark someone down without the need for evidence. Jobholders’ own evidence is being disregarded in favour of behaviour sound-bites. The system is undermining the efforts of good people.

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