Companies Revisit 'Rank And Yank' of 1980s

Transcript

STEVE INSKEEP, HOST:

Let's talk next about a business-management style, one that is familiar to workers in many companies. It's a way of grading employees in relations to one another. Your performance is measured based on a competition of sorts, with the person at the next desk. This system was called "rank and rank" when Jack Welch popularized it at General Electric in the '80s. As the name suggested, the system ranks employees, with those deemed poor performers yanked from their jobs.

This old practice is in the news again. Microsoft recently did away with it; other companies are embracing it. NPR's Yuki Noguchi reports on why it inspires such sharply differing opinions.

YUKI NOGUCHI, BYLINE: The practice goes by many different names - forced ranking, stack ranking or vitality curve. Sometimes, managers assess who's up or out; and sometimes, employees review each other. Either way, the result is a bell curve that compares workers.

The practice elicits lots of passion. On one side you find defenders like Robert Simons, a professor at Harvard Business School.

ROBERT SIMONS: It's merely a way of identifying people who are excelling and at the bottom end, people who need some help.

NOGUCHI: Simons argues stack rankings help companies in competitive sectors like technology keep their edge, allowing them to weed out their hiring mistakes, and making sure their people are a good fit. Google and gaming company Zynga declined to discuss stack ranking, but Simons says both use it to good effect.

SIMONS: The purpose of this technique is to try make every employee in the business feel like a winning competitor.

NOGUCHI: And then there are fierce critics, including technology analyst Rob Enderle.

ROB ENDERLE: It really does cause you to do incredibly stupid things.

NOGUCHI: For example, Enderle says, managers will hire people they know they can fire in order to protect the rest of their team from mandatory elimination. He says it may keep employees on their toes but for the wrong reasons.

ENDERLE: The downside of stacked ranking is the fact that it pits employee against employee and pretty much ensures you won't have collaboration. And innovation becomes difficult because employees don't want somebody else to be successful. So it creates a culture of shutting down ideas.

NOGUCHI: Enderle says employees roundly criticized the system at Microsoft, which ended the practice last month. GE, which championed it for years, abandoned it as well. Enderle says stack ranking leads to a mercenary culture. He says it can sometimes work with an ailing business that has gotten too fat. But as an ongoing management style, it's lethal.

ENDERLE: You have surgery to cut the cancer out. But you don't go in every year and have surgery unless there's more stuff to cut out.

NOGUCHI: Harvard's Simons says critics of ranking evaluations systems focus on the fate of the bottom performers. In fact, Simons says, most businesses use it to keep track of their top people. And he says it doesn't make sense that businesses should treat their workers with kid gloves.

SIMONS: As we face international competitors - who are very much interested in working harder, faster, smarter - trying to say that we shouldn't identify the best in our organization and do everything we can to support them, motivate them, ensure they're the next generation of leadership - are we doing a disservice to our businesses?

NOGUCHI: So is there a forced ranking among professors at Harvard Business School?

(LAUGHTER)

SIMONS: Certainly we have an up or out system. And those who are not promoted are asked to leave the school.

NOGUCHI: So is that it's own kind of forced ranking, would you say?

SIMONS: I guess you'd have to say yes.

NOGUCHI: Unless, like Simons, you are tenured.

Deb Keary is vice president at the Society for Human Resource Management. She says forced ranking is falling out of favor. She says it's good for managers to have a sense of their best and worst performers in their head, just in case it comes time for layoffs or for promotions.

DEB KEARY: So having that ranking in your head, that really helps you make decisions. Now, I wouldn't share it with a soul. I think it would be too destructive.

NOGUCHI: Keary says nowadays the buzzword isn't ranking, it's engagement.

KEARY: Employees like to hear that their opinion matters. They like to hear that their manager cares what they think. Spending a little quality time with each employee that you manage really ups the engagement.

NOGUCHI: It almost turns the forced ranking idea on its head, she says. Companies believe that if employees like what they do and who they work with, they will be more productive.

Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.