Did Microsoft lose a decade because of its staff evaluation system
My 2 cents on this popular article

Microsoft's lost decade has to be a management issue: their staff is top notch, the company has key competitive advantages and loads of cash.
 
Vanity Fair's Eichenwald argues that "stack ranking", i.e. forcing every group at the company to identify a somewhat fixed proportion of low, medium and high performers, explains in large part MSFT's lost decade.  Stack ranking pitted team members against each other, hampering collaboration and crippling innovation.

It is worth noting that most large companies use "stack ranking" in some way, shape or form. It is widely perceived as a good practice, as it forces rigor in staff evaluation and development, and helps with "rating fairness" among other things.  But like every "good practice", it often fails to achieve its purpose because of poor execution.  

There are many questions to consider when thinking about implementing "stack ranking".  Here are 2 specifically focused on the "bottom" quota
 
1- Is my bottom quota aligned with my forced attrition expectations ?
If, as in the article, you expect 10% of low performers, you should be ready to ask 10% of your staff to leave.  This % is on top of voluntary departures (medium- to high- performing employees that will leave you anyway). If you are not actually following through and letting people go, why are you telling these low performers that they are bad .  In practice, except in high "forced attrition" industries, you are often much better off having a bottom quota <10%.

2- Am I enforcing the distribution at the right level ?  This is basic statistics:  if you expect 10% of your staff to be low performer on average , you need about 1,000 employees to be reasonably confident that the % of low performers will indeed be 10%.  In a group of 10 people, there is a very high likelihood (read one chance out of two ) that the right number of low performers is NOT 1, rather 0, 2 or more.  This problem is more complicated than it looks, as it is quite hard to stack rank 1,000 individuals (most likely managed directly by over 100 managers), but getting that piece right is key to useful stack ranking 

Back to MSFT, while I can easily see how stack ranking can go wrong, I believe that MSFT's lost decade's root cause has to be more than a poor performance evaluation system.  I would not be surprised if the key issue was a poor decision making/accountability system instead.

Let me know if you would like me to write more about Management in general or decision making and accountability in particular.

Source: extract on Vanity fair's website: http://www.vanityfair.com/online/daily/2012/07/microsoft-downfall-emails-steve-ballmer
(note: the full article will be in the August print edition)
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