'Stack ranking' stacks the deck against tech innovation

Microsoft performance evaluation system a 'destructive process,' former employees say

An article in the latest issue of Vanity Fair paints an ugly, if hardly unsurprising picture of Microsoft over the past decade. The full article isn't online, but there's an 863-word synopsis that I can reduce to a couple of sentences, at least in terms of explaining Redmond's failure to innovate under CEO Steve Ballmer as well as one obvious outcome of this failure:

“Windows was the god—everything had to work with Windows,” (Steve) Stone tells (VF author Kurt) Eichenwald.

Today, a single Apple product—the iPhone—generates more revenue than all of Microsoft’s wares combined.

(Also read: And the highest employee-rated tech CEO is...) And how did this situation come to pass? We need look no further than this quote from Ballmer in a USA Today interview from April 2007:

"There's no chance that the iPhone is going to get any significant market share. No chance. It's a $500 subsidized item. They may make a lot of money. But if you actually take a look at the 1.3 billion phones that get sold, I'd prefer to have our software in 60% or 70% or 80% of them, than I would to have 2% or 3%, which is what Apple might get."

Dude, you so nailed it! Back to the VF article, of which the most interesting part concerns Microsoft's corrosive employee ranking system. It's apparently not all that popular!

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.

And what's wrong with a little competition between employees? Everything, is what. Because their focus should be on helping the company compete in the marketplace. But with "stack ranking," the name of the game becomes survival. And that inevitably leads to politicking, back-stabbing, posturing and sucking up -- all of which are in the wheelhouse of your average sociopath, as opposed to your quiet, hard-working programmer. Further, an employee's actual performance can gradually become irrelevant as the "stack ranking" process moves toward its conclusion. Management consultant Walter Oelwein writes in his Manager by Design blog:

What is most likely to happen (when "stack ranking" is used) is that the manager who advocates the loudest, or has the most charisma, is most politically “in” with the big boss, or has the most persuasive ability, is able to argue in favor of the “high performers” on the team. The manager who does not make forceful arguments, who cannot summarize eloquently, or simply doesn’t have the advocacy for his employees will inevitably have the “low performers.”

Microsoft isn't the only large company that uses "stack ranking." Others include General Electric, IBM, Intel and Pepsi, at least according to a bit of Googling. Do any of you readers work in a "stack ranking" environment? If so, please tell us about your experiences and whether you think it helps or hurts your organization.

Chris Nerney writes ITworld's Tech Business Today blog. Follow Chris on Twitter at @ChrisNerney. For the latest IT news, analysis and how-tos, follow ITworld on Twitter, Facebook, and Google+.

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