Human Resources

Microsoft Throws Stack Ranking Out the Window

Microsoft, the company that saw itself as market leaders in desktop computing in 1995, has had its share of problems over the past 20 years. 2000 to 2010 had become known as the ‘lost decade’ - the decade, in which the then CEO Steve Ballmer, lost substantial market share from the likes of Apple and Google. Kurt Eichenwald, the author who penned the article ‘Microsoft's lost decade, blamed the system of stack ranking for the lack of company innovation. In November 2012, Lisa Brummel the Head of HR, announced that the company would be getting rid of the stack ranking system and replacing it with a process that had more emphasis on teamwork and employee growth.

The Problem

Kurt Eichenwald explains that in the years Microsoft was supposed to be crippling its competitors, it instead crippled its employees. At the center of Microsoft's cultural problem was their performance review system. Every manager was forced to place their employees on a scale from top to poor performers. One employee said that:

“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.” “It leads to employees focusing on competing with each other rather than competing with other companies.”

At Microsoft, the stack system was simply flawed. As the article states: ‘had microsoft hired top tech executives such as; Steve Jobs of Apple, Mark Zuckerberg of Facebook, Larry Page of Google, Larry Ellison of Oracle, and Jeff Bezos of Amazon - regardless of their performance, under the theory of the stank ranking, two of them would have to be rated as below average, while another would have to be deemed as ‘poor’’.

Executives reported that some of Microsoft's top engineers would avoid working alongside each other out of fear that they would be hurt in their rankings. Certain employees were given what were known as M.B.O.’s - Management business objectives - which were essentially the expectations for what employees would accomplish over a particular year. However, even when employees achieved these M.B.O.’s, they were still not guaranteed to receive a high ranking. This created a culture of sabotage. Employees would try to do a good job, and, at the same time, work hard to make sure their colleagues did not. One engineer reportedly said:

“People responsible for features will openly sabotage other people’s efforts. One of the most valuable things I learned was to give the appearance of being courteous while withholding just enough information from colleagues to ensure they didn’t get ahead of me on the rankings”.

Employees had their reviews biannually by supervisors - who were also subjected to ranking. This created a focus around short-term performance, rather than long term innovation. The best way to guarantee a higher ranking, was to impress not only his or her boss but bosses from other teams as well. That meant employees were focused on gaining favor in order to receive a positive rating from their managers.

Microsoft executives couldn’t understand why the company was struggling in the quality of its innovation compared with competitors such as Apple and Google. Endless surveys were conducted and everytime the same answer would appear: Employees at Microsoft simply did not want to work together.

“I wanted to build a team of people who would work together and whose only focus would be on making great software”. “But you can’t do that at Microsoft” said one manager, Bill Hill. Stack-ranking crippled the ability to innovate at microsoft, as employees were left despondent and disengaged.

Solution

It was clear that the company was in need of a new system, a system that encouraged innovation and professional growth. Before Steve Ballmer stood down as CEO, he implemented company-wide changes. His main objective: Break down the barriers to communication. Employees described divisions within Microsoft as ‘fortresses’ where closed door meeting would frequently occur. Balmer sent a company wide email, stating:

“One strategy, united together, with great communication, decisiveness and collaboration is the only way to fly”

After the announcement, Brummel sent an email stating that  Microsoft would be changing the performance review program. In other words: Microsoft was ditching the ‘rank-and-yank’ system employees detested. Through these changes, the email explained, Microsoft would strive for innovation through more connectedness and engagement across the company. Fundamentally, the new approach would focus on teamwork, collaboration and employee growth. The revamp would remove the much despised bell curve and rating system. Managers would now have the flexibility to allocate rewards in the manner that would best reflect the performance of their teams and individuals. In a Wall Street Journal article, Brummel stated that:

“The review system was overhauled so that Microsoft could emphasize teamwork and employee growth”. “The new feedback system was based on feedback from 10,000 works and interviews with more than 50 executives”

Going forward, the system would focus on how employees collaborated with each other. Performance reviews wouldn’t just be focused on how well the employee did, but how they engaged with their peers around them. Employees now needed to show how they went about leveraging input and ideas from their teammates, and how their contribution would impact the success of others.

Furthermore, Microsoft would implement a system that would focus on employee’s skills and competencies. Through a process called “Connects”, employees would receive real time feedback, that would help them learn, grow and focus on their strengths and key learning areas. Flexibility allowed managers to discuss performance and development plan whenever it suited them. With ‘Connects’, Microsoft made the commitment to assist employees with their professional careers. Today, employees are offered a full range of career resources to help them achieve their personal goals. Now employees have the option to either go deep into their field of expertise, or move across other business functions to experience other business opportunities.

How Impraise fits in

A greater focus on employee growth is important to a company's culture. Implementing a system that assists all aspects of the performance management cycle is vital to understanding the health of the organisation. Impraise helps companies move from the annual performance review to continuous feedback. Managers can regularly check in with their team members, to understand how they are advancing, and what might be hindering their progress. Creating transparency nurtures a deeper sense of trust between employer and employee. Yet, information on the company’s activities alone is not enough. As employees are essential to the ongoing activities of the organisation, it's imperative they are allowed to have a say on the direction the company is going in. What’s more, gathering feedback from employees regularly, gives managers the ability to track progress per team and per employee. This rich data, allows organisations to understand where their key strengths and growth areas lie, and how they could go about improving business practices in real time.

Unfortunately, without realising it, Microsoft created an atmosphere that was described as cultural cannibalism. The practice of stack ranking is flawed in essence. Without being able to nurture employee growth and ultimately product innovation, Microsoft quickly fell behind other competitors. Regardless of management practices, without having the backbone of the company backing the product, eventually any company would stagnate. In Microsoft's case, however, they were able to realise their flaws before they crashed and burned.

Photo by Mike Mozart