Reference no: EM132809398

Why Are Some Companies Yanking Forced-Ranking?

Forced ranking is a popular performance management tool for many well-known companies such as Ford Motor Company, 3M, and Intel. For decades, forced-ranking appraisal practices have helped organizations and their managers differentiate among high- to low-performing employees. This exercise is important because it shows how organizations decide to recognize and reward top performers and determine grounds for terminating low performers.

The goal of this exercise is to demonstrate the advantages and disadvantages of forced-ranking systems.

Read the case about the Adobe's performance-management practices. Then using the 3-step problem-solving approach, answer the questions that follow.

Money is an important tool for both attracting and motivating talent. If you owned a company or were its CEO, you would likely agree and choose performance management practices to deliver such outcomes. You would probably also favor rewarding high performers and having an effective means for removing low performers. For decades, forced-ranking appraisal practices have helped organizations and their managers differentiate employee performance and achieve both objectives-rewarding top performers and providing grounds for terminating the low performers.

Broad Appeal

These qualities made forced ranking (also known as forced distribution or "rank and yank") a popular performance management tool for many marquee companies, such as Ford Motor Company, 3M, and Intel. GE, for instance, made the approach famous using its "vitality curve" to rate employees into three categories-top 20 percent, middle 70 percent, and bottom 10 percent. The top often received raises two to three times greater than the next group, while the bottom group was often put on probation or fired.¹ Microsoft also used forced distribution to ensure it was always raising the bar on talent and performance. It replaced its lowest-performing employees with the best in the market and ensured there was always more exciting work than it had people to do it.²

One argument in support of forced ranking is increased accountability. It requires managers to do the difficult work of differentiating performance. While nobody likes to be the bearer of bad news, not confronting performance issues is an underlying cause of score inflation (grade inflation in school) and mediocrity. The implication is that not everybody can be a top performer, and it is management's job to know and acknowledge the differences. Forced ranking also can be used to remove "dead wood." Employees who aren't as driven, capable, or competitive are driven out and replaced with those who are.³

Another central supportive argument is that resources are constrained, notably people and money. Culling the workforce based on performance is a way to be sure your best employees are able to work on the company's most important and valuable projects, products, and services. And it allows companies not only to allocate more to their best employees, but also to create clear and often substantial differences between different levels of performance and associated rewards.

This All Makes Sense, But Why Are Many Company's Yanking the Practice?

Performance management practices have compounded the challenges faced by Yahoo and Amazon. According to a spokesperson at Yahoo, the company's program-quarterly performance review (QPR) recommended by McKinsey Consulting-is intended to "allow for high performers to engage in increasingly larger opportunities at our company, as well as for low performers to be transitioned out."⁴ However, problems arose when managers and employees accused the company of using it to fire employees "for performance" instead of laying them off. The scale of this issue is substantial, given that nearly one-third of the company's workforce left or was terminated in 2015-2016, though the law requires at least 30 days' notice for mass layoffs.⁵ Similar practices also were linked to discriminatory dismissals at Ford, Goodyear, and Capital One and caused them to change their practices.⁶

Amazon has embraced forced ranking to foster internal competition and drive employees to always improve. Its organizational-level review (OLR) process requires managers to select which employees to support and which to "sacrifice" (not all employees can pass). Even after an incredibly rigorous hiring process intended to select the best of the best, employees are distributed into high, average, and low performers-20, 60, and 20 percent, respectively. This means 80 percent of the company's employees have stopped being stars by the time of their first performance review. The process is challenging for managers too, who must continually select talented subordinates to fire at every performance review.⁷

Rank and Yank at Adobe

Another company that championed forced ranking was Adobe. It had a rigorous, complex, technology-driven process for ranking its employees each year. Performance expectations were set and performance was measured, documented, reviewed, and rewarded. The goals were to help the company improve employee performance and ensure it had the best talent. However, what the company actually achieved was quite different.

Adobe calculated that its process of reviewing its 13,000 employees required approximately 80,000 hours from its 2,000 managers each January and February. This massive time commitment actually reduced employee performance, because this time wasn't being spent on productive work like developing products or cultivating and serving customers. And while the system was meant to ensure manager accountability, it actually allowed many to avoid confronting low performers until the annual review. This meant low performers were terminated only once a year.

Donna Morris, Adobe's global senior vice president of people and places, described the PM flaws this way: "Especially troublesome was that the company's 'rank and yank' system, which forced managers to identify and fire their least productive team members, caused so much infighting and resentment that, each year, it was making some of the software maker's best people flee to competitors."⁸ Moreover, the performance management practices did not align with the goals of employee growth and team work, both fundamental to Adobe's success. It instead focused on past performance and compared employees to each other.

The shortcomings of the process were underscored by internal "employee surveys that revealed employees felt less inspired and motivated afterwards-and turnover increased."⁹ This last point compounded problems by causing the wrong employees-the high-performing ones-to quit.

Assume you are Donna Morris, Adobe's global senior vice president of people and places. How does the information in the case inform your recommendations about PM practices at Adobe?

Apply the 3-Step Problem-Solving Approach to OB

Use the Organizing Framework in Figure 6.6 and the 3-Step Problem-Solving Approach to help identify inputs, processes, and outcomes relative to this case.

Step 1: Define the problem.

• Look first to the Outcome box of the Organizing Framework to help identify the important problem(s) in this case. Remember that a problem is a gap between a desired and current state. State your problem as a gap, and be sure to consider problems at all three levels. If more than one desired outcome is not being accomplished, decide which one is most important and focus on it for steps 2 and 3.
• Cases have protagonists (key players), and problems are generally viewed from a particular protagonist's perspective. In this case you're asked to assume the role of Donna Morris, senior VP of people and places.
• Use details in the case to determine the key problem. Don't assume, infer, or create problems that are not included in the case.
• To refine your choice, ask yourself, Why is this a problem? Focus on topics in the current chapter, because we generally select cases that illustrate concepts in the current chapter.

Step 2: Identify causes of the problem by using material from this chapter, which has been summarized in the Organizing Framework for Chapter 6 and is shown in Figure 6.6. Causes will tend to show up in either the Inputs box or the Processes box.

• Start by looking at the Organizing Framework (Figure 6.6) and determine which person factors, if any, are most likely causes to the defined problem. For each cause, explain why this is a cause of the problem. Asking why multiple times is more likely to lead you to root causes of the problem. For example, do particular skills, values, or personality profiles help explain the problem you defined in Step 1? This might lead to the conclusion that Adobe's PM practices suit particular employees well and others not.
• Follow the same process for the situation factors. For each ask yourself, Why is this a cause? For example, the quality of relationships between managers and subordinates might have some effect on the problem you defined. Other HR practices, aside from performance management, might contribute to the problem. If you agree, which specific practices and why? By following the process of asking why multiple times you are likely to arrive at a more complete and accurate list of causes. Again, look to the Organizing Framework for this chapter for guidance.
• Now consider the Processes box in the Organizing Framework. Performance management processes are clearly part of the story, but are any other processes at the individual, group/team, or organizational level potential causes of your defined problem? For any process you consider, ask yourself, Why is this a cause? Again, do this for several iterations to arrive at the root causes.
• To check the accuracy or appropriateness of the causes, be sure to map them onto the defined problem.

Step 3: Make your recommendations for solving the problem. Consider whether you want to resolve it, solve it, or dissolve it (see Section 1.5). Which recommendation is desirable and feasible?

• Given the causes identified in Step 2, what are your best recommendations? Use the material in the current chapter that best suits the cause. Remember to consider the OB in Action and Applying OB boxes, because these contain insights into what others have done. These insights might be especially useful for this case.
• Be sure to consider the Organizing Framework-both person and situation factors, as well as processes at different levels.
• Create an action plan for implementing your recommendations.

Which step in an effective performance management system would forced-ranking be a part of?