Vitality curve
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A vitality curve is a leadership construct, assigning credit with certain proportions of the production to proportions of a producing population.
For example, there is an often cited "20/80 rule" or the Pareto principle/Law of the Vital Few — the top 20% of criminals commit 80% of the crimes, the top 20% of academics produce 80% of useful results, etc. In some cases, such "20/80" tendencies do emerge, and a curve is a fuller representation.
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[edit] Other names
The following are names given to the implementations of the vitality curve concept.
- forced ranking
- forced distribution
- rank and yank
[edit] Rank-based employment evaluation
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The concept of a "vitality curve" has been used to justify the "rank-and-yank" system of performance management, whereby 10% of workers are fired at each evaluation. Jack Welch, former CEO of General Electric, used a "vitality curve" model in an attempt to justify his "rank-and-yank" practices.[citation needed]
Jack Welch's vitality model has been described as a "20-70-10" system. The "top 20" percent of the workforce is most productive, and 70% (the "vital 70") work adequately. The other 10% ("bottom 10") are nonproducers and should be fired. Rank-and-yank ideologues credit Welch's rank-and-yank system with a 28-fold increase in earnings (and a 5-fold increase in revenue) at GE between 1981 and 2001.[citation needed]
[edit] Straight from the Gut
In Straight from the Gut, Welch says that he asked "each of the GE's businesses to rank all of their top executives". Specifically (in accordance with the 20-70-10 model) the top executives were divided into "A", "B", and "C" players. Welch admitted that the judgments were "not always precise".
[edit] "A" players
"A" players, Welch claimed, are
- filled with passion
- committed to "making things happen"
- open to ideas from anywhere
- and blessed with lots of "runway" ahead of them,
- have charisma, the ability to energize themselves and others,
- can make business productive and enjoyable at the same time.
- and exhibit the "four E's" of leadership:
- very high Energy levels
- can Energize others around common goals
- the "Edge" to make difficult decisions,
- the ability to consistently Execute, or deliver on their promises
[edit] "B" players
The vital "B" players may not be visionary or the most driven, but are "vital" because they make up the majority of the group.
[edit] "C" players
"C" players are nonproducers. They are likely to "enervate" rather than "energize", according to Welch's model. Procrastination is a common trait of "C" players, as well as failure to deliver on promises.
These designations apply not only to workers at the bottom levels, but also managers.
[edit] Consequences
Welch advises firing "C" players, while encouraging "A" players with rewards such as promotions, bonuses, and stock options.
[edit] Criticisms of rank-and-yank
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The model assumes that the players do not change their rank. In practice even the fear of being selected as a "C" player may result in an employee working harder, reducing the number of "C" players.
Some critics believe that the 20-70-10 model fails to reflect actual human behavior. Among randomly selected people assigned to a task, such a model may be accurate. However, at each iteration, they contend the average quality of employees will increase, making for more "A" players and fewer "C" players. Eventually, the "C" players comprise less than 10 % of the workforce.
Once rank-and-yank has expelled all the weak employees, further iterations may not improve average workforce quality, as the people coming in rate lower than the people gone.
The style may make it more difficult for employees to cross rate from one division to another. For example, a "C" employee in a company's Customer Service division would be at a disadvantage applying for a job in Marketing, even though he or she may have talents consistent with an "A" rating in the other division.
Obviously, this is a tremendously competitive model of organization. All criticisms of both the morality and (in)effectiveness of such a dog-eat-dog method of social cohesion apply. The question, then, in such a situation is: how are the "C" players selected? What may happen is that office politics and lowered morale will ultimately reduce productivity, damage communication and interoffice relations, and encourage cheating. Rank-based performance evaluations (in education and employment) are said to foster cutthroat and unethical behavior.
Rank-and-yank contrasts with the management philosophies of W. Edwards Deming, whose broad influence in Japan has been credited with Japan's world leadership in many industries, particularly the automotive industry. "Evaluation by performance, merit rating, or annual review of performance" is listed among Deming's Seven Deadly Diseases. It may be said that rank-and-yank puts success or failure of the organization on the shoulders of the individual worker. Deming stresses the need to understand organizational performance as fundamentally a function of the corporate systems and processes created by management in which workers find themselves embedded. He sees so-called merit-based evaluation as misguided and destructive.
[edit] Companies utilizing this management philosophy
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[edit] Management consulting
Rank-and-yank-like models are common amongst management consulting firms, often referred to as an 'up-or-out' approach to evaluations. Specifically, Accenture uses an 'up-or-out' model with its staff: if employees do not get promoted after a certain length of time at their existing career level (usually no more than 4-5 years), they are 'counselled out' of the firm (shorthand for being fired - but on generous terms).[citation needed]
Once a year (twice a year in the UK), Accenture consulting employees are rated based on their performance into one of five rankings at their career level.
This system promotes vitality in the firm, theoretically allowing only the strongest performers to reach leadership positions. In practice, however, this system has a tendency to dilute leadership, as individuals who may be better oriented toward upper management and executive positions leave the firm before promotion to those levels is possible. Additionally, due to extraordinarily high levels of employee attrition, Accenture is built on the need for enormous recruitment, particularly at the entry level. If, for some reason, the firm was no longer able to recruit the enormous number of graduates it requires each year - or was unable to attract a high quality of graduate - this model would falter.
[edit] GE
GE is by far the most famous company to utilize this form of corporate management. However, since Jack Welch's departure from the company, less emphasis has been placed on eliminating the bottom 10% and more emphasis placed on team-building.[1]
[edit] Enron
Enron traders also commonly were under the threat of being fired if they didn't produce the desired results. Though the accounting scandals are most credited with the demise of the company, it has later come out that part downfall was attributed to employees inflating results in part to help protect their jobs. More about this can be seen in the movie Enron: The Smartest Guys in the Room.
[edit] Motorola
Motorola instituted a Vitality Curve plan in the mid-90's under the name IDE (Individual Dignity Entitlement). First six, then nine metrics questions were used to rank employees' perception at the corporation. In 2000-2002, the plan was changed to the PM (Performance Management) program, which was a direct 10-80-10 philosophy and used to "weed out" the lowest producers and reward the highest producers, while offering little to no rewards compensation to the mid-level producers. Some 50,000 employees globally were cut from the Motorola global workforce between 1995 and 2005, and many of these can be attributed to the Vitality Curve. Economics also played a major role, as the stock suffered major losses in the same period.
[edit] Microsoft
Microsoft also uses a Vitality Curve, which has come under increasing internal criticism. Mini-Microsoft, an anonymous blogger internal to the company, has made "the curve" a frequent topic on his blog.
[edit] Dow Chemical
Dow Chemical uses a Vitality Curve program under the guise of Performance Management. The program started in 2005 with mixed results. Challenges in attracting talent to mid-West and Gulf Coast operations will dog the programs effectiveness in the long run.
[edit] References
- ^ http://money.cnn.com/2006/07/10/magazines/fortune/rule5.fortune/index.htm CNN Money - July 10, 2006
