Microsoft throws stack ranking out the window

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 placed 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. But, 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 work hard to achieve the best results, but, at the same time, they would try to ensure 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 in the rankings”.

Employees were evaluated 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 more on gaining favor and popularity 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 every time the same answer would appear: Employees at Microsoft simply did not want to work together.

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.

As the first step, Head of HR Lisa Brummel sent an email announcing that Microsoft would be changing their performance review program. In other words, Microsoft was ditching the ‘rank-and-yank’ system employees detested.

Fundamentally, the new approach would focus on teamwork, collaboration and employee growth. Managers would now have the flexibility to allocate rewards in a manner that would best reflect the performance of their teams and individuals.

Performance reviews wouldn’t just be focused on how well the employees performed, but also on how they engaged with their peers. Employees now needed to demonstrate how they went about leveraging input and ideas from their teammates, and how their contributions 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. This flexibility allowed managers to discuss performance and development throughout the year.

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

Creating an 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. Not having the ability to nurture employee growth and ultimately product innovation, Microsoft quickly fell behind other competitors. Revamping their performance management process enabled them to tackle this culture of competition head on and create the right environment for innovation to begin flourishing again.

Download our latest Guide to People Enablement Programs below, to better understand the main priorities to take into consideration, and how you can build a program best suited to your organisation.