Upgrading the Quality of Staff

Consider the following scenario: A leader joins a slow-paced organization that is part of a rapidly changing industry. While this organization has well-meaning people, it is apparent the overall skills to execute and deliver value have deteriorated. Given that decline is the long-term consequence for an organization that reacts to market forces slower than competitors, any leader would find this alarming.

In fact, the strategy literature offers a way to depict an organization heading toward this state using a so-called "S" curve. The "S" curve symbolizes the standard development pattern of products, businesses or industries. For example, products start with slow growth, followed by rapid acceleration, then a leveling off and, ultimately, demise. Depending on the industry, this can be a short or long cycle.¹ The leaders' job is to "jump curves"¹ by adding products or executing new strategies that place the business at an earlier development stage in hopes of enabling long-term viability of the business.

Knowledgeable leaders understand this configuration and recognize that "sitting still" or resting on laurels is never a good idea. Therefore, a leader faced with the above scenario is compelled to action. To start, the leader might conduct an assessment of the needs of the business in comparison to the current and projected requirements, and determine what actions are necessary to eliminate any gaps.  Next he or she would evaluate the talent pool in the organization and determine if the existing group is able to support the future direction of the business.

If current workers’ knowledge, skills and abilities are weak, action must be taken. A logical step is to validate that the selection processes are working to increase the quality of talent hired. As capacity is increased, those with increased skills will infuse a business improvement. Unfortunately, this takes time, which some organizations may not have. Therefore, a second alternative is to move the business to a new location (beyond the commuting range of the original location). This would allow the organization to hire a large group of workers and escalate the acquisition of quality talent. The latter option is very disruptive, but it can be a quick method to reach the objective. 

Another alternative offers a middle-of-the-road strategy. This tactic includes the adoption of a procedure that requires leaders to regularly replace the bottom performing 10% while also encouraging the middle performers to improve. The top-tiered group is showered with accolades in hopes they will continue. 

This final approach was the creation of the former CEO of GE, Jack Welch; some have called it the A-B-C approach or, as he has described it, the 20% – 70% – 10% system.²  The A players (top 20%) are keepers, the B players (70%) are important to the organization but are prodded to improve, and the C players (10%) are told there is not a fit and are given time to gracefully exit. This is a forced choice system whereby the leaders or unit managers are required to assess each worker annually. Effectively, in perpetuity, the bottom performers are culled from the organization, establishing the conditions for a continuous and ongoing improvement in staff quality.  

On the surface – both at the organizational and unit levels – this kind of process makes sense. It establishes a process to rid the organization of lower performers and over time those that remain, in theory, are of the highest quality. Unfortunately, there are dark consequences to such a program. Here is a list of possible outcomes that defy the benefits that organization seeks:

•  The organization becomes highly competitive. People know the consequence of the poor C rating and thus compete and or politick to stay in the A or B categories, and their focus changes to keeping on top rather than doing good work. An environment that causes excessive political behavior negatively influences job satisfaction, voluntary turnover (perhaps even among the A or B players), stress and performance.³ Further, when people are competing for job slots, deviant behavior can also result, such as cutting corners or sabotaging a colleague.

• The system can decrease subjective attitudes one holds about the organization, such as job satisfaction;³ when this happens, organization citizenship behavior is also likely to decline.³

•  It allows room for abuse. When leaders separate workers into an in-group and out-group, it negatively impacts performance and citizenship behaviors.³ Leaders tend to favor the in-group with better projects, insights into secret organizational happenings, etc. The A players by default end up in the in-group. Leaders should not generate this kind of overt separation and instead work to treat organizational members with equality.

• Organizational justice issues, especially as it relates to perceptions of procedural justice, may result. GE included it in the workers' annual performance evaluation; to integrate effectively, the process must be very well-managed and organized. If there is the perception that selecting C players is not fair, it can cause a range of organizational issues such as lower job satisfaction, performance and trust.³ Motivation of the workers can decrease, especially if one is assigned a lower rating.

Given the long list of problems that such a system can cause, why would organizations adopt such a process? Jack Welch, in interviews and a recent article in the Wall Street Journal,² defends the practice, suggesting that not being clear about where people stand is criminal. He explains that the basis of the approach is through the annual evaluation process where the individual receives direct feedback about his/her performance and a candid assessment. ² He has explained that differentiation, as he has described it, helps the worker determine fit with the values and direction of the business. “[It] starts with communication – exhaustive communication – of a company’s mission (where it’s going) and its values (the behaviors that are going to get it there).”² The evaluation process is not just about assessing a person’s quantitative results, according to Welch, but also their behaviors.² He believes that with or without such process, eventually workers discover how their performance is viewed and it is best to inform them early and prevent one from being fired unexpectedly after years of positive performance reviews. 

I am ambivalent about Welch’s strategy. While I see it is a fit under certain conditions, I think it can be harmful to the organization long-term, especially from an Organizational Behavior perspective and the corresponding negative consequences to job satisfaction, productivity, performance, organizational citizenship behavior, turnover, absences and workplace deviance.³ Organizations have enough trouble engaging workers, and the addition of a process that advances negative feelings can have long-term destructive consequences. 

Jack Welch's GE is not the only organization to install such a process, but their ranks are declining. Microsoft recently eliminated their process, called 'Stack,' which was very similar but now is viewed as harmful.⁴

There is a time and place for organizations to raise the bar on overall staff skills and quality. A process similar to what was installed by Jack Welch at GE is one such process and can be used for a short-term increase in organizational skills. However, it is not advisable to make this process permanent because of its harmful results. While the goal is a well-organized and structured feedback system, it is best to use methods that have fewer long-term negative consequences when possible.

Please feel free to make comments.

References

¹ Nunes, P., & Breene, T. (2011). Jumping the S-Curve: How to Beat the Growth Cycle, Get on Top, and Stay There. Boston: Harvard Business Review Press.

 ² Welch, J. (2013). Jack Welch: 'Rank-and-Yank'? That's Not How It's Done: Using 'differentiation' aligns employee performance with an organization's mission and values. Wall Street Journal  [O-line Edition] Retrieved 12-5-13.

³ Robbins, S., & Judge, T. (2013). Organizational Behavior (15th ed.). Boston: Pearson.

⁴ Ovide, S., & Feintzeig, R. (2013, 11-13-13). Microsoft Abandons Dreaded 'Stack': Software Giant Drops Forced Ranking of Employees, a System Pioneered by GE but Now Unpopular. Wall Street Journal.