11 ms·

Steve Ballmer revered Jack Welch's rank-and-yank management style. During the 2000s and early 2010s Microsoft's stack-rank reviews were infamous for the intern

Steve Ballmer revered Jack Welch's rank-and-yank management style. During the 2000s and early 2010s Microsoft's stack-rank reviews were infamous for the internal politics created. Didn't matter if you had a full team of top-tier engineers, the bottom 15% WAS going to get managed out. Savvy managers would hire low-tier performers to protect the productive ones. That's the only lens through which I have to view Mr. Welch's contributions unfortunately. https://en.wikipedia.org/wiki/Vitality_curve https://en.wikipedia.org/wiki/Vitality_curve https://money.cnn.com/2013/11/13/technology/enterprise/microsoft-stack-ranking/index.html https://money.cnn.com/2013/11/13/technology/enterprise/micro...

Ididntdothis 7y ago
Ballmer actually left a better company than Welch.
- throwaway55554 7y ago
  Because of policies like this or in spite of them?
  - hylaride 7y ago
    Both. I've posted this before about Ballmer, but I'll repost: He consistently increased earnings via Windows and Office during his tenure as CEO. He was a very good businessman. He was not, however, a product guy. Witness their failures with the Zune, mobile, search, and early cloud computing. His problem was that he always tried to do what would be best for Microsoft first and not the customer. You can get away with this if you already have an entrenched install base (windows/office), but with net new products people will look at what's best for them first. Even with developers developers developers he tried too hard to get people to use pure MS tech and made developing for the web on MS ugly if you are using anything other than .NET. He didn't see the geeks learning to program in their basement or dorm rooms who ended up using free software instead of going through any "free" channels that may have been available to them (were they?). The result is a generation of developers on Macs and to a lesser extent linux. MS is only now catering to them. Funny enough, thinking of the customer is what MS did with the xbox and it worked out well enough.
    - Ididntdothis 7y ago
      Ballmer also didn’t create a personality cult around himself. He actually seemed ok with being viewed as a clown as long as it helped Microsoft.
      - olivermarks 7y ago
        Great point.
shekharshan 7y ago
They called him “neutron Jack” for that very reason.
- projektfu 7y ago
  That was more because of his restructuring in the early 90s. "As with a neutron bomb, the buildings are still standing but the people are gone." He didn't seem to understand GE's broad products businesses but did understand finance, so he continuously closed those operations.
  - triceratops 7y ago
    > He didn't seem to understand GE's broad products businesses but did understand finance, so he continuously closed those operations. Uh...no. He was a trained chemical engineer, and understood products, manufacturing, and operations perfectly well. In his own words, here's why he emphasized finance: "My gut told me that compared to the industrial operations I did know, this business [GE Capital] seemed an easy way to make money. You didn't have to invest heavily in R&D, build factories, and bend metal day after day. You didn't have to build scale to be competitive. The business was all about intellectual capital - finding smart and creative people and then using GE's strong balance sheet. This thing looked like a 'gold mine' to me." (emphasis mine)
    - keenmaster 7y ago
      "[GE Capital] seemed an easy way to make money...This thing looked like a 'gold mine' to me." A good MBA finance curriculum might kick off with the Modigliani-Miller theorem (M&M), which basically says: 1. Theoretically, you can't create value through your mix of financing. It doesn't matter whether you use 100% equity, 100% debt, or 50/50, your mix of financing won't create value (unlike good R&D for example). 2. #1 above is predicated on the absence of tax incentives, bankruptcy costs, agency costs, and asymmetric information, and the market being efficient. The creators of M&M believed that the assumptions in #2 are mostly false most of the time. The beauty of the theory is in the assumptions themselves. Prescriptively, it basically says that your mix of financing matters only insofar as the assumptions in #2 are false for your project at your company in your country. If you start a division like GE Finance, and you start using complicated financial derivatives, you have several things to prove. You have to show which M&M assumptions are false for your company, to what degree they are false, that your suggested method of financing will take advantage of the M&M violations, and that the magnitude of financing matches the magnitude of M&M assumption violation (this last bit is important, GE really went hog wild with derivatives in a way that was completely not justified). GE Capital never passed the M&M sniff test.
teej 7y ago
Hiring folks to act as telomeres for your team seems so cruel.
- akitzmiller 7y ago
  Ooh. This is good. When I write my best selling Management Genetics(R) book filled with cellular jargon to describe The Business Double Helix(R), I am totally using this. With attribution, of course.
  - jjoonathan 7y ago
    Ugh, I hate it already. I am sure it would be wildly successful.
- deleted 7y ago
  [deleted]
- gowld 7y ago
  Why? Those are people who couldn't get a better job anyway.
  - watwut 7y ago
    They were people who thought they are getting real job, but have been set up to fail from day one. Just because you pay people some money does not mean it is ok to use them like toys.
stefco_ 7y ago
Contrast with W. Edwards Deming's approach that stresses the systematics of the organization and considers rank-and-yank a symptom of bad management: https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly_Diseases https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly...
- rhizome 7y ago
  As far as Welch is concerned, I'm pretty certain that his system was never going to find him in the bottom 10% of any possible ranking. Call it Gödel's Management Strategy.
- billman 7y ago
  +1 for Deming
- rstuart4133 7y ago
  I identify as software engineer that works with software, processes and a little bit of machines and maths, but have also run a few business in partnership with others. Years ago in an effort at self improvement I did a postgrad course on software quality. Studying what Deming has to say was a big part of it. Turns out it is not so easy to apply it to engineering (as opposed to manufacturing what the engineers designed), and the ham fisted approaches the postgrad course was promoting at the time (like CMM) didn't look promising, and with the benefit of 20 years hindsight now look farcical. Nonetheless, his dogma of extracting statistically valid measures of processes, propagating those through the organisation so harvesting everyone's ideas on how to improve them struck a deep cord, and it's something that I've tried to apply ever since. I've been exposed to other MBA related ideas, but that is the only one that ever made sense to me. It's a pity it's so damned hard to apply to software engineering. It has one one notable effect - I'm now seen by my co-workers as near obsessive about collecting and monitoring failure rates - whether they be bugs or things like people reporting software being difficult to use.
cletus 7y ago
Add to that that stack ranking has a tendency to devolve into a popularity contest and that it most rewards those who do the best job of convincing everyone that their job is hard then one has to ask if this is really the best system for a group of people that trends towards being introverted.
- RandallBrown 7y ago
  I worked at Microsoft for a short time and got burned pretty badly by the stack ranking system. In my first year there I had 3 different managers, so by the time my review came around, nobody really knew me very well. At least not well enough to fight for me in the ranking meetings. So ultimately, I received the lowest ranking. What made it most annoying is that it was prefaced with a speech about how I was doing a good job, but someone had to get that ranking. This was just me. About the only good advice that manager gave me was that if this happened again, I should leave the company because it was going to be an endless spiral that I couldn't get out of. It was actually the last time they did the stack ranking and I left before finding out if things got any better. The whole project I was on got canceled a few weeks after I left anyway.
amyjess 7y ago
IIRC Welch came up with rank-and-yank because he needed to lay people off and decided he wanted to be "fair" about it and not lay off his best performers. And somehow that got cargo-culted into "we should continuously get rid of the bottom X% of people all the time".
- asveikau 7y ago
  Well, at some point in American business culture it does seem like a number of people did lose sight and become convinced that the only way to deliver shareholder value is to lay off continuously.
  - neves 7y ago
    It looks like this became the basis of American economy. And you can't loose your job, because you'll miss your mortgage or education payments and loose your health care. So you must do anything your employer tell you to do.
    - dnautics 7y ago
      I would say it's become the basis of worldwide modern central banking capitalism, gas and water socialist countries included.
      - random_savv 7y ago
        Can't tell if this is meant as sarcasm or truthfully :-)
    - WalterBright 7y ago
      > because you'll miss your mortgage or education payments and loose your health care. This is why the sensible thing to do is to save up a cushion of 6 months. You can continue with your employer health care with COBRA for 6 months or a year.
      - 7y ago
martin1975 7y ago
The problem with performance reviews is that they are mostly subjective instead of mostly objective. I've yet to see a company specify a clear objective criteria for advancement.
- PopeDotNinja 7y ago
  I have the same problem with behavioral interviews. "Tell me about a time when..." "I want to see how you think." "What your greatest..." 95% of my philosophy is don't be an asshole, work hard, know my stuff, and don't let the turkeys get me down. I spend no time dwelling on mistakes, as I internalize the lessons and throw out the reason I learned those lessons.
  - tlb 7y ago
    The reasons might come in handy later when you're trying to mentor younger colleagues and you're trying to explain why things are the way they are.
hintymad 7y ago
I find Netflix's model works better: allocating resources by visibility of a team. Roughly speaking, a manager gets a chunk of budget from her manager, and she can decide how big a package she gives to each of her team members. The more important a team becomes, the more budget the team gets. The more visible a person becomes to her manager, the more likely this person will get larger package. This comes with the following nuances: * A team member is responsible for her visibility only to her team and her manager. There is really no need for any popularity contest if the team is small enough. I deem it as fair as it can get. * A manager can definitely abuse the system, but then the team would suffer churn and productivity loss, and the manager would be punished. If the team performed anyway with little churn despite the manager's misbehavior, well, did the manager really misbehaved? * To make the system work, the management chain needs to be perceptive, and teams need to be small. Netflix delivered both, which showed that Reed Hastings is a truly great CEO.
- lazyant 7y ago
  I may not agree completely with Netflix' philosophy but I love that it has "tests", like "would you fight for a person to stay? if not, let her go" https://jobs.netflix.com/culture https://jobs.netflix.com/culture
  - mywittyname 7y ago
    With the caveat that you need to be like Netflix to pull this off. Most companies don't have the endless talent pool to feed from that makes this strategy work. So many have to settle for, "Is this person better than no one?
- kamaal 7y ago
  >>she can decide how big a package she gives to each of her team members In my experience this turns out be a huge scam. Worse a legally sanctioned scam. Say she had 11 members in her team. She will give $90 to her pet, and $1 each to the remaining 10. That is how this works on the longer run. The definition of a 'high performer' is often hazy here, and a case can be built up to justify giving the money to whom she wants. Eventually it turns out there are enormous cartel like structures, you have to be in them to get paid up well. Or you slog like a donkey and quit eventually.
rmason 7y ago
I think a better way to remember him is his insistence that all GE's company's be either first or second in their market. So under performers got a chance to go for it and if they failed they were sold. Welch more than quintupled GE during his time. None of his successors could manage the company so what he built is slowly being dismantled. What I never understood is why they didn't just split the company in half which would have returned more value to the shareholders.
- lotsofpulp 7y ago
  > None of his successors could manage the company so what he built is slowly being dismantled. Or GE Financial was hiding a ton of bad debts while he was in charge.
vl 7y ago
Welch also invented corporate raiding by management. When he started, employees owned 0, when finished 31 percent of GE, with majority of 31 owned by management. This effectively transferred 1/3 of value from shareholders to management. Since then same thing happens with most other corporations.
- technotony 7y ago
  But at the same time enterprize value increased 40x. Paying 1/3 of the gains to management seems fair given the performance.
  - vl 7y ago
    But it's more complex than this. Would it increase as much without paying 1/3? Were short-term gains optimized at the expense of sustainable business?
  - cma 7y ago
    Didn't they start doing leveraged finacial product investments and stuff since it was heads their massive stock option incentives pay off, tails no big loss for them.
- gowld 7y ago
  Was that 31percent purchased or seized?
  - vl 7y ago
    Granted as stock options or restricted stock units.
  - TuringNYC 7y ago
    Granted by dilution
AtlasBarfed 7y ago
"Savvy managers would hire low-tier performers to protect the productive ones." Juking the stats! I'm shocked there isn't a middle management bible dedicated to this. Where is the hackers guide to middle management?
amznthrowaway5 7y ago
> Steve Ballmer revered Jack Welch's rank-and-yank management style. So does Jeff Bezos. 10% forced "least effective" is still implemented here at Amazon and is truly destructive. The quota often gets passed down to small teams. The worst part is that performance evaluations have almost nothing to do with performance.

Ididntdothis 7y ago

Ballmer actually left a better company than Welch.

throwaway55554 7y ago
Because of policies like this or in spite of them?
- hylaride 7y ago
  Both. I've posted this before about Ballmer, but I'll repost: He consistently increased earnings via Windows and Office during his tenure as CEO. He was a very good businessman. He was not, however, a product guy. Witness their failures with the Zune, mobile, search, and early cloud computing. His problem was that he always tried to do what would be best for Microsoft first and not the customer. You can get away with this if you already have an entrenched install base (windows/office), but with net new products people will look at what's best for them first. Even with developers developers developers he tried too hard to get people to use pure MS tech and made developing for the web on MS ugly if you are using anything other than .NET. He didn't see the geeks learning to program in their basement or dorm rooms who ended up using free software instead of going through any "free" channels that may have been available to them (were they?). The result is a generation of developers on Macs and to a lesser extent linux. MS is only now catering to them. Funny enough, thinking of the customer is what MS did with the xbox and it worked out well enough.
  - Ididntdothis 7y ago
    Ballmer also didn’t create a personality cult around himself. He actually seemed ok with being viewed as a clown as long as it helped Microsoft.
    - olivermarks 7y ago
      Great point.

shekharshan 7y ago

They called him “neutron Jack” for that very reason.

projektfu 7y ago
That was more because of his restructuring in the early 90s. "As with a neutron bomb, the buildings are still standing but the people are gone." He didn't seem to understand GE's broad products businesses but did understand finance, so he continuously closed those operations.
- triceratops 7y ago
  > He didn't seem to understand GE's broad products businesses but did understand finance, so he continuously closed those operations. Uh...no. He was a trained chemical engineer, and understood products, manufacturing, and operations perfectly well. In his own words, here's why he emphasized finance: "My gut told me that compared to the industrial operations I did know, this business [GE Capital] seemed an easy way to make money. You didn't have to invest heavily in R&D, build factories, and bend metal day after day. You didn't have to build scale to be competitive. The business was all about intellectual capital - finding smart and creative people and then using GE's strong balance sheet. This thing looked like a 'gold mine' to me." (emphasis mine)
  - keenmaster 7y ago
    "[GE Capital] seemed an easy way to make money...This thing looked like a 'gold mine' to me." A good MBA finance curriculum might kick off with the Modigliani-Miller theorem (M&M), which basically says: 1. Theoretically, you can't create value through your mix of financing. It doesn't matter whether you use 100% equity, 100% debt, or 50/50, your mix of financing won't create value (unlike good R&D for example). 2. #1 above is predicated on the absence of tax incentives, bankruptcy costs, agency costs, and asymmetric information, and the market being efficient. The creators of M&M believed that the assumptions in #2 are mostly false most of the time. The beauty of the theory is in the assumptions themselves. Prescriptively, it basically says that your mix of financing matters only insofar as the assumptions in #2 are false for your project at your company in your country. If you start a division like GE Finance, and you start using complicated financial derivatives, you have several things to prove. You have to show which M&M assumptions are false for your company, to what degree they are false, that your suggested method of financing will take advantage of the M&M violations, and that the magnitude of financing matches the magnitude of M&M assumption violation (this last bit is important, GE really went hog wild with derivatives in a way that was completely not justified). GE Capital never passed the M&M sniff test.

teej 7y ago

Hiring folks to act as telomeres for your team seems so cruel.

akitzmiller 7y ago
Ooh. This is good. When I write my best selling Management Genetics(R) book filled with cellular jargon to describe The Business Double Helix(R), I am totally using this. With attribution, of course.
- jjoonathan 7y ago
  Ugh, I hate it already. I am sure it would be wildly successful.
deleted 7y ago
[deleted]
gowld 7y ago
Why? Those are people who couldn't get a better job anyway.
- watwut 7y ago
  They were people who thought they are getting real job, but have been set up to fail from day one. Just because you pay people some money does not mean it is ok to use them like toys.

stefco_ 7y ago

Contrast with W. Edwards Deming's approach that stresses the systematics of the organization and considers rank-and-yank a symptom of bad management: https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly_Diseases https://en.wikipedia.org/wiki/W._Edwards_Deming#Seven_Deadly...

rhizome 7y ago
As far as Welch is concerned, I'm pretty certain that his system was never going to find him in the bottom 10% of any possible ranking. Call it Gödel's Management Strategy.
billman 7y ago
+1 for Deming
rstuart4133 7y ago
I identify as software engineer that works with software, processes and a little bit of machines and maths, but have also run a few business in partnership with others. Years ago in an effort at self improvement I did a postgrad course on software quality. Studying what Deming has to say was a big part of it. Turns out it is not so easy to apply it to engineering (as opposed to manufacturing what the engineers designed), and the ham fisted approaches the postgrad course was promoting at the time (like CMM) didn't look promising, and with the benefit of 20 years hindsight now look farcical. Nonetheless, his dogma of extracting statistically valid measures of processes, propagating those through the organisation so harvesting everyone's ideas on how to improve them struck a deep cord, and it's something that I've tried to apply ever since. I've been exposed to other MBA related ideas, but that is the only one that ever made sense to me. It's a pity it's so damned hard to apply to software engineering. It has one one notable effect - I'm now seen by my co-workers as near obsessive about collecting and monitoring failure rates - whether they be bugs or things like people reporting software being difficult to use.

cletus 7y ago

Add to that that stack ranking has a tendency to devolve into a popularity contest and that it most rewards those who do the best job of convincing everyone that their job is hard then one has to ask if this is really the best system for a group of people that trends towards being introverted.

RandallBrown 7y ago
I worked at Microsoft for a short time and got burned pretty badly by the stack ranking system. In my first year there I had 3 different managers, so by the time my review came around, nobody really knew me very well. At least not well enough to fight for me in the ranking meetings. So ultimately, I received the lowest ranking. What made it most annoying is that it was prefaced with a speech about how I was doing a good job, but someone had to get that ranking. This was just me. About the only good advice that manager gave me was that if this happened again, I should leave the company because it was going to be an endless spiral that I couldn't get out of. It was actually the last time they did the stack ranking and I left before finding out if things got any better. The whole project I was on got canceled a few weeks after I left anyway.

amyjess 7y ago

IIRC Welch came up with rank-and-yank because he needed to lay people off and decided he wanted to be "fair" about it and not lay off his best performers. And somehow that got cargo-culted into "we should continuously get rid of the bottom X% of people all the time".

asveikau 7y ago
Well, at some point in American business culture it does seem like a number of people did lose sight and become convinced that the only way to deliver shareholder value is to lay off continuously.
- neves 7y ago
  It looks like this became the basis of American economy. And you can't loose your job, because you'll miss your mortgage or education payments and loose your health care. So you must do anything your employer tell you to do.
  - dnautics 7y ago
    I would say it's become the basis of worldwide modern central banking capitalism, gas and water socialist countries included.
    - random_savv 7y ago
      Can't tell if this is meant as sarcasm or truthfully :-)
  - WalterBright 7y ago
    > because you'll miss your mortgage or education payments and loose your health care. This is why the sensible thing to do is to save up a cushion of 6 months. You can continue with your employer health care with COBRA for 6 months or a year.
    - 7y ago

martin1975 7y ago

The problem with performance reviews is that they are mostly subjective instead of mostly objective. I've yet to see a company specify a clear objective criteria for advancement.

PopeDotNinja 7y ago
I have the same problem with behavioral interviews. "Tell me about a time when..." "I want to see how you think." "What your greatest..." 95% of my philosophy is don't be an asshole, work hard, know my stuff, and don't let the turkeys get me down. I spend no time dwelling on mistakes, as I internalize the lessons and throw out the reason I learned those lessons.
- tlb 7y ago
  The reasons might come in handy later when you're trying to mentor younger colleagues and you're trying to explain why things are the way they are.

hintymad 7y ago

I find Netflix's model works better: allocating resources by visibility of a team. Roughly speaking, a manager gets a chunk of budget from her manager, and she can decide how big a package she gives to each of her team members. The more important a team becomes, the more budget the team gets. The more visible a person becomes to her manager, the more likely this person will get larger package. This comes with the following nuances: * A team member is responsible for her visibility only to her team and her manager. There is really no need for any popularity contest if the team is small enough. I deem it as fair as it can get. * A manager can definitely abuse the system, but then the team would suffer churn and productivity loss, and the manager would be punished. If the team performed anyway with little churn despite the manager's misbehavior, well, did the manager really misbehaved? * To make the system work, the management chain needs to be perceptive, and teams need to be small. Netflix delivered both, which showed that Reed Hastings is a truly great CEO.

lazyant 7y ago
I may not agree completely with Netflix' philosophy but I love that it has "tests", like "would you fight for a person to stay? if not, let her go" https://jobs.netflix.com/culture https://jobs.netflix.com/culture
- mywittyname 7y ago
  With the caveat that you need to be like Netflix to pull this off. Most companies don't have the endless talent pool to feed from that makes this strategy work. So many have to settle for, "Is this person better than no one?
kamaal 7y ago
>>she can decide how big a package she gives to each of her team members In my experience this turns out be a huge scam. Worse a legally sanctioned scam. Say she had 11 members in her team. She will give $90 to her pet, and $1 each to the remaining 10. That is how this works on the longer run. The definition of a 'high performer' is often hazy here, and a case can be built up to justify giving the money to whom she wants. Eventually it turns out there are enormous cartel like structures, you have to be in them to get paid up well. Or you slog like a donkey and quit eventually.

rmason 7y ago

I think a better way to remember him is his insistence that all GE's company's be either first or second in their market. So under performers got a chance to go for it and if they failed they were sold. Welch more than quintupled GE during his time. None of his successors could manage the company so what he built is slowly being dismantled. What I never understood is why they didn't just split the company in half which would have returned more value to the shareholders.

lotsofpulp 7y ago
> None of his successors could manage the company so what he built is slowly being dismantled. Or GE Financial was hiding a ton of bad debts while he was in charge.

vl 7y ago

Welch also invented corporate raiding by management. When he started, employees owned 0, when finished 31 percent of GE, with majority of 31 owned by management. This effectively transferred 1/3 of value from shareholders to management. Since then same thing happens with most other corporations.

technotony 7y ago
But at the same time enterprize value increased 40x. Paying 1/3 of the gains to management seems fair given the performance.
- vl 7y ago
  But it's more complex than this. Would it increase as much without paying 1/3? Were short-term gains optimized at the expense of sustainable business?
- cma 7y ago
  Didn't they start doing leveraged finacial product investments and stuff since it was heads their massive stock option incentives pay off, tails no big loss for them.
gowld 7y ago
Was that 31percent purchased or seized?
- vl 7y ago
  Granted as stock options or restricted stock units.
- TuringNYC 7y ago
  Granted by dilution

AtlasBarfed 7y ago

"Savvy managers would hire low-tier performers to protect the productive ones." Juking the stats! I'm shocked there isn't a middle management bible dedicated to this. Where is the hackers guide to middle management?

amznthrowaway5 7y ago

> Steve Ballmer revered Jack Welch's rank-and-yank management style. So does Jeff Bezos. 10% forced "least effective" is still implemented here at Amazon and is truly destructive. The quota often gets passed down to small teams. The worst part is that performance evaluations have almost nothing to do with performance.