Differentiation
How would you like to work for a company that requires you to fire ten percent of your employees every year? I just finished reading Jack Welsh’s latest book, Winning, in which he describes “differentiation” – his method of improving performance at General Electric where he was CEO for many years.
In a nutshell, according to Welsh, differentiation is:
“It’s a process that requires managers to assess their employees and separate them into three categories in terms of performance: top 20 percent, middle 70 percent, and bottom 10. Then – and this is the key – it requires managers to act on the distinction. The top 20 percent of the employees are showered with bonuses, stock options, praise, love, training, and a variety of rewards to their pocketbooks and souls. There can be no mistaking the stars at a company that differentiates. They are the best, and they are treated that way.
The middle 70 percent are managed differently. This group of people is enormously valuable to any company; you simply cannot function without their skills, energy, and commitment. After all, they are the majority of your employees. And that’s the major challenge, and risk, in the 20-70-10 – keeping the middle 70 engaged and motivated.
As for the bottom 10 percent in differentiation, there is no sugar coating this – they have to go. That’s more easily said than done. I hate to fire people – I even hate the word. But if you have a candid organization with clear performance expectations and a performance evaluation process,… then people in the bottom 10 percent generally know who they are. When you tell them, they usually leave before you ask them to.”
In his book, Welsh goes on to discuss several questions that he is normally asked about this system of people management. But he didn’t address the questions I have.
Let’s pretend that you are the leader of a high performing team of 10 people. At the end of the year you have to evaluate all of your direct reports and pick one to fire and 2 to lavish praise and bonuses on. How do you think you would feel? I expect the 2 super stars would feel good, on the other hand if they are really good astute people, they would understand that for the most part it was the team and the system that allowed them to be successful. And I guess we know how the one that gets fired would feel. What about the other 7 people? Are they wondering if they were number 3 and why they weren’t picked as a super star? Or are they wondering if they will be the one who gets fired next year?
So now what happens? Do we now have 9 people pitted against each other - everyone trying to be a superstar, or everyone living in stress and fear? And do we get to replace the one we fired, or do we now have to do the same or more work with 9 people?
Another year passes.
Same drill. Who gets fired
this year? Is it the new guy who
has been a drag on the team because he is still learning the ropes? Or is it one of last year’s 7 in
the middle? Or heaven forbid, is it one of last year’s superstars who stubbed his
toe or lost a big account because it moved to
The questions I want to ask Welsh are these:
Let’s face it, Welsh was a very successful CEO. General Electric, under his leadership has grown to be a huge successful global company. But I wonder what it could have been if he had a different approach to personnel management.
PS. Subsequent to writing this article I contacted GE corporate office and received this response to my question about whether they are continuing to use the differentiation approach to personnel management.
“We still use a comprehensive development process for assessment and growth of an employee, but there is no mathematical equation in this process... it is simply an individual assessment.”