This article at Vanity Fair talks about Microsoft incurring human resource failure by using stack ranking:

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.”

Stack Ranking and MBA thinking

The point about Stack Ranking is that company management gets into a mentality that there is no other competition. Therefore you need to manufacture competition (instead of co-operation) because you are small minded idiot. After all, if competition made you “successful” then even more competition must be better so that you keep getting ever bigger, ever larger and more of everything.

Of course, this is house of cards management concept. Only real competition builds real results for smart people. Engineers are plenty smart enough [1] to detect the false requirements and work out how to fiddle a system like this. Let me think: Move departments every 9 months, abandon projects in mid-stream if they are slightly behind schedule, change the project scope, take leave at critical times or even advance/ delay your work delivery to get the best looking results. These are a just a few obvious ways to game that type of system.

Competition

It seems to me that a major difference between Apple and Microsoft, for example, is that Apple ‘competes’ by co-operating between it’s internal divisions (apparently a unique business and management idea) and ALSO competing to make the product better than it already is and the customer happier than they are today. Your company will never “win” in this scenario because the product can always be improved, and customer can always be happier and this type of competition is less likely to be unhealthy. That’s a competitive urge that is creative, not destructive.

Network Angle

For a networking angle on this, Cisco has a number of internal divisions that all compete for customers. The obvious example is the Catalyst 4500 competing against the C6500 and Nexus 7000. I’m not sure if Cisco still uses stack ranking today,  but they certainly did in the early 2000′s  and some part of the mindset persists. Why else have three business units competing to make similar products ?

Do you think that Cisco and Microsoft innovating ? The evidence says no – that’s why they use spin-ins and make huge acquisitions to acquire what is perceived as “innovation”.  It’s also worth noting that the other extreme which exists in companies like Tata where it’s company policy retian any and all underperforming staff as part of the ‘family’, have equally poor innovation problems.

The EtherealMind View

There isn’t any easy answer, of course, but dumb management will come up with dumb ideas every day of the week. Stack ranking might work in certain situations, but for administering teams of smart and self motivated people,  it’s nothing but dumb. I’ll bet the consultants made a pile out of selling the idea, but it’s bad management that implemented it.