It was announced recently that Steve Ballmer will be retiring as CEO of Microsoft. There are a lot of articles on the web-tubes about all the trends that Microsoft missed in the past decade, and all the things he did wrong.
One of them relates to one of my posts about Fallen Business Idols. One of the fallen idols is Jack Welch. The connection here is that one of the things that many people cited that went wrong under Ballmer is what some call “stack ranking“. The idea is that you rank employees. Two get the highest ranking, seven get the good ranking, and one gets the low ranking. The idea is that if someone keeps ranking low, they are eventually fired.
On the surface, it seems to make sense. If someone is not doing well, let them go. But what if everyone is dong well?
The problem is that these numbers are kind of set in stone. When I was at one of the Too Big To Fail banks, they introduced this. Some call it “rank and yank”. I was put in the middle. I know of one guy who told me that his manager told him that he was going to get the low rank because the manager had to put someone in that low rank. The 2/7/1 structure is not a guideline (some companies may use different proportions). It is a requirement. But the idea is that someone must be flagged as an underperformer, even if they are doing well.
I even asked a manager about this. What if you think that nobody deserves to get the boot? He said that someone must get that rank. He was a few levels up in the hierarchy. Drone territory.
What is interesting is that according to the Vanity Fair article linked above is that people would avoid working with the top developers. I have been in technology for about 15 years, and generally technology people like to work with people who are smarter than they are in order to learn more. If you are unintentionally forcing people to scale down their ambitions, then you are doing something wrong. Slate also writes about this rank and yank system.
I also knew someone at a hedge fund in Chicago who said that someone on his team was let go because, well, someone had to be let go. That was the policy. Fire some people every year. Because they are Big Tough Guys, and they aren’t afraid to fire someone. Logic be damned.
What does this have to do with GE? GE pretty much started it. Or at least made it famous. A lot of people did things just because GE did them. A lot of people would point to the earnings and the stock price as proof that GE was right. The Big Picture blog has a few links to articles refuting the infallibility of GE. (A link to a Forbes article was not formatted properly; correct link is here.) Even during Welch’s heyday, many people thought that GE Capital was a magical slush fund. So maybe this accounting fraud hid a lot of dysfunction and bad practices, including this one.
Another reason that GE was able to get away with this was that GE acquires companies all the time, so there will be more churn. But if you are not always buying new companies, then at some point your staff should stabilize. If you are still getting rid of 10% of your staff after four years of this, perhaps you need to look at your hiring process.
Also: GE stopped this practice after Jack Welch left GE. I think that says a lot.
If you want bizarre images of Steve Ballmer, check out the Fake Steve Ballmer blog. Some of them are pretty funny.