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Stack Ranking: Organizational Cancer


Doug Meil of Ontada

Some organizational leaders can manage to hold the following thoughts concurrently in their heads:

  1. "Our organization only hires the best, because we have an intensive interview process."
  2. "Our organization regularly needs to fire a non-trivial and fixed percentage of the workforce who aren't up to standards."

This combination of statements raises a great many questions, not the least of which is, if only the best are hired, why isn't everybody great? If the initial screening process is as exceedingly thorough as advertised, shouldn't washouts be an exception rather than the rule? The second statement is commonly referred to as stack ranking, and especially when paired with the first, produces an organizational cancer in every sense of the phrase.

The Biology Of Cancer And Bad Management

Cancer, in its most simplified form, is the aggregation of cellular genetic mutations, particularly from those known as oncogenes and tumor suppressors. Oncogenes are genetic markers which act as "gas pedals" for abnormal cellular growth and other undesirable behaviors when switched on. Tumor suppressors act as the "brakes" for keeping the cell-cycle in check, and bad things can happen if they get switched off.  Stack ranking manages to be problematic on both counts by not just promoting maladaptive organizational behavior, but also codifying it.

Furthering the analogy:

  1. Cancer could be introduced with a random mutation (or leadership change).
  2. Cancer could affect anybody, young and old.
  3. It's typically the metastases that kill.

While individual cells are the ones initially affected and harmed by cancers, it can take a while for the organizational effects to accumulate and proliferate, sometimes years. But when that happens, a systemic failure can occur.

Impact In The Tech Industry

Rankings in a general sense are human nature, as people tend to have favorites. A given department of five or 10 people is typically going to have a few "go to" people to get things done in a pinch. Getting promoted from an individual contributor to a team leader also a form of "ranking" that is neither wrong nor crazy. The problem starts with the presumptions of what it means for the rest of the team.

General Electric (GE), Microsoft, and Enron were three sizable and seemingly unrelated organizations notable for their use of stack ranking, or as it was called at GE and Enron: Rank-and-Yank. GE employed it for years, but is now a shadow of its former self and will be splitting into three different entities after decades as the archetypal corporate conglomerate and a pioneer in industrial engineering. Enron not only imploded in scandal, but took accounting firm Arthur Andersen down with it. Microsoft went through a long period of product doldrums that has been referred to as "Microsoft's Lost Decade." While the specifics of each company's trials and tribulations are worth studying and are beyond the scope of this post, common symptoms were a heightened focus on internal politics rather than innovation (GE and Microsoft) or ethics (Enron), and an entrenched and frequently brutal stack ranking process. 

A 2012 Vanity Fair article on Microsoft put it plainly:

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."

Similarly, a 2012 Forbes article compared practices from GE and Microsoft, again highlighting the misplaced focus that stack ranking produces:

"Welch's Rank and Yank was the same concept. It rated workers "on a three-step scale, based on individual goals and performance. The top 15% are told they are "1s," the middle 75% are designated "2s" and the bottom 10% are assigned "3s," according to the Wall Street Journal. And the bottom 10% got canned.

"…GE's Rank and Yank put the focus of competition internally and the simple fact was and remains that GE is a conglomerate with very different businesses all under the same corporate umbrella. To put a middle-of-the-pack washing machine business in competition with a globally-dominant jet engine one makes little sense strategically."

The outcomes of such a system are incentives to not be the new person on a team, to not ask questions, to not work on new and unfamiliar efforts, and to not work together at all generally.  Those behaviors become embedded in an organization's DNA, despite whatever is advertised publicly.

A news story came out in 2017 about GE CEO Jeff Immelt traveling with a backup corporate jet that tailed the corporate jet he was flying in. This sounds like parody but it is not, and it wasn't likely the cost that most annoyed GE employees, or even the fact that he allegedly had both steak and lobster regularly prepared so he could change his mind at the last minute on what he wanted for lunch on the road. It was arguably the symbolism of a safety net and support not available to the rest of the company that stung most:  the CEO gets surf and turf and a backup jet, and employees get Rank and Yank.

Why Does This Bad Idea Keep Coming Back?

"Oderint dum metuant" - Caligua

Stack ranking seems like management, and it can keep a lot of HR people busy with paperwork, which appears like productivity. It also creates an excuse for executives to not do the hard parts such as providing constructive feedback, developing teams, fostering collaboration, creating new and innovative market-leading solutions, and generally inspiring people to do better. "We have a review process" they will say, "and we are following it."  Such activities don't need to make any sense, they just need to be institutionalized to take over.

Stack ranking, just like cancer, is as old as time.  And it will keep coming back in new forms and with new brandings such as "Top Grading," "Vitality Curve," "Forced Rankings," or "Forced Distributions," because it is easier than actual leadership. The best advice for any organization is to watch for the signs. When the focus becomes primarily inward-looking, especially with core assumptions about a fixed percentage of people that are regularly "underperforming" or "need to go," this is a huge red flag, especially for the rank-and-file employees who will be the first to feel the impact.

The above quote from Caligula translates roughly as "let them hate, so long as they fear."  As I said, old as time.

 

References

Stack Ranking

Microsoft

 

GE

Stack Ranking

Enron

Stripe (October 2022)

  • At the moment I had finished a draft of this post, a Forbes article came out titled "Stripe Takes Steps To Prune Workforce" on the force-ranking process with the widespread "lack of psychological safety" it produces. Coincidental timing, but per above, this is a topic that will never go away.

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Doug Meil is a software architect in healthcare data management and analytics. He also founded the Cleveland Big Data Meetup in 2010. More of his BLOG@CACM posts can be found at https://www.linkedin.com/pulse/publications-doug-meil


Comments


James Larus

It is even worse than you describe. With stack ranking, you CANNOT build a high-performing team composed primarily of experienced, accomplished people. They all know that joining such a team will be detrimental to some of their careers because somebody has to get a B or C ranking so they will look for a more "balanced" (mediocre) team.


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