How to Kill Teams Through "Stack Ranking"

The newest Vanity Fair offers an article titled Microsoft’s Downfall: Inside the Executive E-mails and Cannibalistic Culture That Felled a Tech Giant. It starts with the following:

Analyzing one of American corporate history’s greatest mysteries — the lost decade of Microsoft — two-time George Polk Award winner (and V.F.’s newest contributing editor) Kurt Eichenwald traces the “astonishingly foolish management decisions” at the company that “could serve as a business-school case study on the pitfalls of success.”

Relying on dozens of interviews and internal corporate records — including e-mails between executives at the company’s highest ranks — Eichenwald offers an unprecedented view of life inside Microsoft during the reign of its current chief executive, Steve Ballmer, in the August issue...

Eichenwald’s conversations reveal that a management system known as “stack ranking” — a program that forces every unit to declare a certain percentage of employees as top performers, good performers, average, and poor — effectively crippled Microsoft’s ability to innovate.

“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,” Eichenwald writes.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

When I read that section, I immediately recognized similarities with programs at former employers.

This is not a comfortable post to write, but I believe it is important to learn from management and business failures as well as successes. Clearly programs like "stack ranking" are destructive for organizations and individuals. The sooner managers and human resource departments learn that lesson, the better for the business and its team members.

Is "stack ranking" something you've encountered?


Anonymous said…
HP had (may still have) a very similar system. Just because a Bell curve works over a large population does not mean it works over a group of 6.
I had a good professor that adamantly opposed anything like "stack ranking". I've experienced it at companies that use quartiles, where there is a top quartile, bottom quartile and everyone in between. It artificially creates a top, average, and bottom group no matter how good or bad your actual employee pool.

Eventually, employees that are put in the average group when they belong in the top will leave until only 25% of the employees remaining are above average. This applies to all the groups -- if employees are put in a group where they don't really belong then it will eventually even itself out. It's self-fulfilling and perfect if you want to make sure your company is average instead of superior to others.
Sandbags said…
There is another perspective. you have a team of 5, due to budget pressures you need to let one person go, and yes, generally you won't want to. Who do you select? Randomly is just dumb, so I guess you have to rank them from 1 - 5 and number 5 is it.
This is particularly difficult with knowledge workers and SMEs but somehow you have to choose.
As ugly as it sounds one person will be "less" valuable to your team than the others.
Anonymous said…
The prior comment is the proof of the problem. The philosophy is planning for failure instead of aiming for success. And as you know, what you plan for is what you get.
Tim said…
It seems to be an executive/hr reaction to poor middle managers. The theory seems to be that across the whole of the organization statistically the employees will work out to be in the stacks. But, like all statistics, that only pans out across a significant population set. It certainly alleviates the problem of managers who give everyone top marks regardless of their actual performance (done for various reasons by managers) but it kills any incentives for people motivated by true job performance. I've worked at a couple organizations that utilized it and the end result both times was mediocrity of employees overall.
Anonymous said…
I have a different kind of example. The company I work for, manager has worked hard to avoid internal competition. You just work, you don't have to worry about coworkers. Everybody works.
And result is 20 people create almost as much as 120.

People are scored when hiring. More than 9/10 will not get hired.
If you slack a lot you are fired. Nobody likes doing that, you have some freedom, but can't abuse it.

I do not know how they will put scores on who stays and who must go. Probably like always, by personal preference.
X said…
I worked for one of the "big four" consulting firms. What happens is that people start mimicking the behaviours that get laddered highly instead of just behaving well... classic was using Outlook "delay sending" to make it look like emails were sent at 2am to make it look like you were pulling macho all-nighters. Meanwhile, people doing real work don't get noticed.
Anonymous said…
This sounds like they stole a page from Jack Welch at GE.

Welch laid off the bottom 10% of the performance pool every year. Of course he started from a lumbering 400k people corporation that had not been known for its human capital.
Anonymous said…
NSPS was based on this concept - you could not build a team of super skilled people, this type approach leads to mediocre performance, we almost had tshirts made.
Anonymous said…
I just resigned from Gartner, Inc. which has been applying this for nearly ten years. As a manager, I lost good people who wouldn't put up with it. Then for speaking truth to power, I was demoted and mistreated. I didn't need to take that after 22 years of contributing. But the company's stock is up, profitability is up and morale is down down down down.
Anonymous said…
I work for a UK Company and we use this but it's called forced distribution. It drives people to compete within the department, against each other, looking for ways to score points over other colleagues and work in isolation, worried another team member may share in any success and be placed above you at year end.
It's destructive, causes friction and seriously impacts on productivity. People should be encouraged to work together for the good of the organisation and all efforts and work should be recognised. A good manager will manage poor performance, develop their people and recognise the people who excel.
Anonymous said…
The problem: the people who decide to keep programs like stacked ranking are the ones who rose to the top of the heap by "playing the game", so they think it works. What they fail to recognize is they were probably NOT the best nor brightest.
Anonymous said…
I've worked for multiple companies that implemented this practice. I agree with others that the process ensures the company never has a team full of true talent and drive.

To expand upon a previous comment, teams end up in-fighting whether directly or indirectly. The practice provides incentive to let other team members fail. Because someone has to fill the bottom slots, people become afraid to help their teammates improve or solve problems.

This may seem like I was around people that were petty or cruel. But the truth is that every employee has their own person responsibilities to take of. In an economy where finding work is difficult, employees have to do what they can to make sure they keep their jobs (to pay for their mortgage, support their families, etc).

It's truly sad that the people in positions that are supposed to understand employee needs and behavior (HR, management, executives) actually decide to implement this process. Maybe if the C-level executives were ranked in the same way and at least one CXX was fired every year the process would be eliminated.
Anonymous said…
My company is in telco business. Having the need to let go people we made the "bad" ones leave the company several years ago. In the next step we got rid of the not-so-good ones. As a result, we had a vast majority of good, excellent and outstanding people.

But then our company decided to introduce that mandatory "stacking" mechanism. Now we have to find 10% "underperformers" every year =>

a) In some department there just are no underperformers left, but still you have to de-motivate 10% of people telling them they are not-so-good because every manager has to identify 10% (no matter how much you discuss with HR and senior managers)

b) The managers are told to agree on measures how to develop the "underperformers" so that they are better next year and will be "good". So ... assuming the person really improves - whom to select next year??

This whole system is really stupid. Unfortunately our senior management is not able to realize that. But then - hey, maybe that explains why they did take other stupid decisions as well.
Anonymous said…
Someone posted a comment about having a team of 5 and we must let 1 go due to the budget, so yes, stack rank at that point, it's the life-boat exercise. I assume this need is a less frequent occurrence. The trouble is when we start stank ranking each year, or at Microsoft, quarterly. We would stack rank quarterly, check in with our teams, and let them know where they stand. It becomes a problem that negatively manifests itself in several ways. Of all the teams I have been on in my life, this system was the most destructive, but as a manager, I had to keep my opinions to myself, and get behind the message that this style of performance reviews does promote a healthy, working environment, where teamwork is valued. It took a part of my soul with it ever quarter.
Anonymous said…
Worked in a team of 40 at a Financial Institution, "fitting the bell curve" meant that 4 people had to have a bad performance rating.
Apparently 1 year there were only three people who deserved it so it was a popularity contest to find the fourth.

The same organisation had a policy where "only" doing what was expected was ample grounds for one guy getting "managed out".
Analogous to only wearing five pieces of flair.

Soul killing environment made liveable for me by a line manager (team lead) who acted as a buffer between that crap and his team members.
Anonymous said…
Stack ranking is a good hint of bureaucratic mindset, which affects large companies sooner or later. It's one of the indicators that an inflection point has been reached. The problem isn't just placing people into the wrong categories, but people realizing they've ended in the wrong category because they focused on their work rather than on gaming the bureaucracy.
Anonymous said…
I work in the US military, and this is exactly how performance is measured through the Evaluation and Fitness Report system. Every 2-3 years when I move to a new command I find myself sizing up the others in my bracket and wondering how I can "break-out" come evaluation time. It is damaging to the productivity and morale of the command.
Anonymous said…
Amazon also follows the same policy.

GPS in Bangalore has about 80 ppl and they need to identify 8 employees every year to fill the bottom stack.
Amazon takes peer feedback for ranking and what really happens is that employees flock together to give each other good feedback to save jobs. Newcomers specially, who aren't aware of this, get worst hit as they receive negative feedback and buck passing, back stabbing kills their chances even before they are ready to adapt to new environment. And lot of newcomers are forced to leave within a year.
What is worse, you do get to read your peer's review and mostly you can make out who wrote the review. It seeds deep mistrust between in team and affects the project and productivity.
Anonymous said…
My employer uses stack ranking for performance management. It's wildly unpopular with rank and file employees who all hate it, so the corporate executives must love it or it would be gone. Like MS, we're a big software company that has been stagnant for the last few years. I'm sure stack ranking is partially to blame as it always has a negative impact on morale and motivates non-collaboration within teams.
Anonymous said…
IBM is a big user of this system and it leads to demoralization on a large scale. Many have left. How does that drive shareholder value?
Anonymous said…
This might be very good practice! It surely should be applied to C level jobs as well as board members, I'd like to see 10-20% of them being kicked off every year!
Anonymous said…
We use it at our current organization with over 100 employees, where some sub-groups are as small as 6 people. It has worked very well because its complementary to a culture focused on contribution. The key to stack/rank is that it must be combined with rewards. You can have a great year and still not be one of the top 10%.

In the US, all the major sports teams focus on contribution and 'cut' those that are not (yet) performing at the highest level. Yet the rewards mean there's always players trying to make the team.

Where performance is objectively measured, stack-rank works.

I suspect where it fails most is among organizations that lack the ability / willingness to objectively recognize superior performance. And I doubt they get that performance either.

But given the talent in our field, I would hope at least 50% of us would want the opportunity to compete in a stack-rank environment, based on the tangible impact we make through our roles.
Anonymous said…
"Sandbags", you reply (not necessarily yourself ) is sooooo naive.

You put in stack-ranking, the first thing that happens is that you kill all collaboration - not only you kill collaboration people actually sabotage (within limits) other people work so they can come on top.

Secondly, who is the least valuable person to the team? - right a person who is about to relocate to a different team within the same company (or maybe leave the company) - what do you do? you screw them. creating antagonism and not planning ahead. How do avoid law suite? - you lie, you keep everything in the dark, and you do not give detailed reviews in writings.

And this is before you put office politics in.

Do you still think it is a good system?

Bill said…
There is another side effect not cited on the stack ranking demise of Microsoft. Who is constantly do "security updates"? No more patches and upgrades or new features for customers. Windows 8 cracked the day it came out? How does that happen? Microsoft has a standing army of ex employee enemies gunning hard on them. I will also agree that stack ranking killed Microsoft's creative edge along with with all the other negative side effects.

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