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October 26, 2015

It’s Time to Toss ‘Rank and Yank’

Summary:

Annual employee rating systems, often known as "rank and yank," don't solve problems; the systems make it hard to develop employees.

Photo Courtesy of The Natural Step Canada

When executives don’t perform well, sometimes they’re fired. But when the company’s merit rating system doesn’t improve employees, do you fire it, too?

If you’re Accenture CEO Pierre Nanterme, you do. That’s right, he fired ‘rank and yank.’

There will be no more annual performance reviews at Accenture — a decision that employees wholeheartedly support, according to their responses on Facebook, and the Washington Post, whicho broke the story.

This wasn’t the first time in recent memory that rank and yank was given the boot.

Earlier this year, GE and Deloitte largely eliminated their annual review processes, too. They followed Adobe, which blazed the way in March 2012.

If the unintended consequences of annual performance reviews haven’t yet hurt your business, consider yourself fortunate. But if your organization is one of the millions of businesses that have not fundamentally improved people — effectively making employees worse off today than they were when they first came to work for you — you owe it to yourself and your employees to rethink how you reward and improve people.

The Unintended Consequences

Dr. W. Edwards Deming first suggested eliminating the annual performance review 50 years ago. Deming called it “a disease that annihilated long-term planning, demolished teamwork, left people crushed, bruised and despondent and unable to comprehend why they were inferior.”

Today, with fewer than 40% of employees feeling as though they matter at work, is there much data from which to disagree?

Probably not.

While Deming’s comments certainly weren’t popular with mainstream American leadership, they have resonated loudly with millions of employees.

One thing Deming frequently talked about is systems thinking and how it relates to rank and yank and improving people and their productivity.

Output Equals Input

A Formula One race car running at peak performance maximizes the engine and transmission to generate both horsepower and torque as it speeds along the track. But other components of the system also contribute greatly to the race car’s success or demise.

For example, the conditions of the track can vary based on the weather. Heat, cold, humidity, wind and other climatic conditions all affect racing, creating the need for differing types of tire compounds and race car setup. The speed at which a team can change tires also goes into the mix.

So which element is most likely to propel the car to victory?

All of them. None of them stands alone. This is precisely the point behind systems thinking. The sum of the parts is far more important than individual components.

A System of Profound Knowledge (SOPK)

In Deming’s System of Profound Knowledge, he promoted the idea that a system of production had four key elements that were necessary to improve and transform an organization.

  1. Appreciation of a system
  2. Knowledge of variation
  3. Theory of knowledge
  4. Psychology

All four elements needed to be thoroughly understood by leadership to materially improve production rates, create greater operating efficiencies and, most importantly, improve people on a continuum.

The Element Of Psychology: Destroying the Entire Herd

The original thinking behind the merit rating system was that ranking employees — one against another — would bring the cream to the top, and separate the butterfat from the buttermilk. But the system as we know it has not only spoiled the milk but destroyed the herd used to produce it.

In addition, the merit rating system does little to improve a system’s performance. While a handful of employees might “feel” able to produce more goods and services for a few days following favorable performance reviews, the fact is, over the long haul, this isn’t true.

The Element of Variation and a Bunch of Red Beads

In his famed red bead experiment, Deming destroyed the fallacy that different people, doing the same thing over and over again in a standardized production process, would yield markedly different results. And the variation in output was predictable to near certainty.

During Deming’s experiments, he first established a standardized process. Employees would use the exact same machinery, methods and materials to perform his experiment. The only difference was the person performing the process. Deming, in fact, often used company executives to be production workers for a day.

The goal was to make white beads, of the highest quality and at the fastest rate.

So, pay for performance, maximize output, separate the wheat from the chafe and men from the boys, right?

Wrong!

Mixed within the white beads would be problems, represented by red beads. Executives would reach down inside a container to pull out white beads, and red beads would be mixed in.

Deming compared the white-bead production of each executive, and they were astonished when they couldn’t outproduce one another on a meaningful basis, no matter how competitive they were or how much encouragement or punitive action they received from Deming or other team members.They were all impaired by the wasteful red beads that kept popping up.

Deming’s simple example of controlled variation showed thousands of executives that merit ratings were ineffective tools at improving human productivity, and improving humans themselves.

To increase production, what was needed was a different way of doing things. A systemically better way. One that used an entire team’s talents and knowledge to find the root causes behind production problems. Knowledge and talents that could be used to improve the system while getting to the bottom of the causes of the red beads.

Deming promoted a system of win-win. One that helped any man or woman working within a system get dramatically better psychologically, not intrinsically worse emotionally. A system that avoided using one man’s talents to destroy another man’s ego — or perhaps even “annihilate it,” as Deming suggested was happening throughout American culture more than 30 years ago.

The Importance of Knowledge

Harvard sociologist Chris Argyris defined learning as “the detection and correction of errors.” Deming suggested that man’s long-term need to learn — an intrinsic motivator — far outweighed the extrinsic rewards and short-term benefits from his financial success.

It was within this context that Deming talked at length about knowledge, psychology, variation and systems thinking and their respective impact on people, productivity and engagement. All aimed directly at improving the conditions in which employees work.

Individuals Vs. Team-Based Merit

Many employees will be happy to see you yank old rank and yank. Especially those who — according to your merit rating system — are indispensable performers one year but dispensable slugs the next.

It’s time to revisit the ideas behind systems thinking and how it can improve man on a continuum.

I rarely use the word “terminate.” But if firing, or simply “laying off” the merit rating system for a while will bring about the good change we need to improve people and profits simultaneously, let’s bring about its pink slip.

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About the Author

Colin Baird provides Kaizen training to improve operational efficiency (lean manufacturing) programs. A speaker as well as a writer, his articles on continuous improvement appear frequently in Chief Executive magazine, CEO.Com, Leadership Excellence and Public Sector Digest.

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