Feb 01, 2012

Rank Favoritism?

Unless we’re absolutely sure we’re at the top, most of us don’t like being ranked against our peers. But many companies like to rank their employees from best to worst, promoting the top and even going so far as to fire the bottom.

“The method, sometimes called ‘rank and yank,’ was pioneered by Jack Welch when he ran General Electric Co. from 1981 to 2001, and was rapidly adopted by other firms,” The Wall Street Journal explained this week. “Today, an estimated 60% of Fortune 500 firms still use some form of the ranking, though they might use gentler-sounding names like ‘talent assessment system’ or ‘performance procedure.’”

Of course, the system has its detractors. “Critics of forced ranking say that it demoralizes workers and fosters backstabbing and favoritism,” the Journal noted.

So, is forced ranking something we should stop? Peter Drucker (who, as we’ve pointed out, had very strong ideas about performance reviews) would probably say no. In The Frontiers of Management, Drucker observed that most companies (this was in 1985) didn’t like to measure productivity among white-collar workers, claiming that such as assessment was nearly impossible. “But this is simply not true,” Drucker countered. “The yardsticks we have may be crude, but they are perfectly adequate.” And they had to be deployed, for on the global stage “the competitive battle will be won or lost by white-collar productivity.”

He was also a fan of Welch’s, crediting him with having “the courage of a lion.” In Management Challenges for the 21st CenturyDrucker wrote approvingly that General Electric, during Welch’s tenure, had “created more wealth than any other company in the world” and that much of the credit was due to its success in organizing information about performance. A “focus on the innovative performance of the business” became a “major factor in determining compensation and bonuses of the general manager and of senior management people of a business unit,” and, similarly, an analytical look at performance data was helpful in “deciding on the promotion of an executive, and especially of the general manager of a business unit.”

Still, Drucker did sound a cautionary note about performance measurements: They only work if they quantify the right things. “Businesses usually define performance too narrowly—as the financial bottom line,” Drucker wrote. “If that’s all you have as a performance measurement and performance goal in the business, you are not likely to do well or survive very long.”

What do you think: Should we keep ranking and yanking, or is it time to yank ranking?

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