Vitality curve
Encyclopedia
A vitality curve is a leadership
construct whereby a workforce is graded in accordance with the productivity of its members.
For example, there is an often cited "80-20 rule" - also known as the "Pareto principle
" or the "Law of the Vital Few" - whereby 80% of crimes are committed by 20% of criminals, or 80% of useful research results are produced by 20% of the academics, and so forth. In some cases such "80-20" tendencies do emerge, and a Pareto distribution curve is a fuller representation.
'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 advocates 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.
or the most driven, but are "vital" because they make up the majority of the group.
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.
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. They contend, however, that at each iteration, 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
.
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.
This is a competitive model of organization. The criticisms of both the moral
ity and actual effectiveness of such a dog-eat-dog method of social cohesion apply. Challenges to the model include: "C" player selection methods; the effect of office politics
and lowered morale
on productivity, communication, interoffice relations; and cheating. Rank-based performance evaluations (in education and employment) are said to foster cut-throat and unethical behavior. University of Virginia
business professor Bruner wrote: As Enron
internally realized it was entering troubled times, rank-and-yank turned into a more political and crony
-based system .
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.
as well as PricewaterhouseCoopers
use an 'up-or-out' model with their staff: if employees are not 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).
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.
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.
traders also commonly were under the threat of being fired if they did not produce the desired results. Though the accounting scandals are most credited with the demise of the company, it has later come out that part of the 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
.
has used a Vitality Curve despite intense internal criticism. Mini-Microsoft
, an anonymous blogger internal to the company, made "the curve" a frequent topic on his blog.
In a memo to all Microsoft employees dated April 21, 2011, chief executive Steve Ballmer
annouced the company would make explicit the Vitality Curve model of performance evalution: "We are making this change so all employees see a clear, simple, and predictable link between their performance, their rating, and their compensation." The new model has 5 buckets of pre-defined size (20%, 20%, 40%, 13%, and 7%), and management simply ranks. All compensation is pre-defined based on the bucket, and employees in the bottom bucket are ineligible to move positions with the understanding they will soon be yanked.
Leadership
Leadership has been described as the “process of social influence in which one person can enlist the aid and support of others in the accomplishment of a common task". Other in-depth definitions of leadership have also emerged.-Theories:...
construct whereby a workforce is graded in accordance with the productivity of its members.
For example, there is an often cited "80-20 rule" - also known as the "Pareto principle
Pareto principle
The Pareto principle states that, for many events, roughly 80% of the effects come from 20% of the causes.Business-management consultant Joseph M...
" or the "Law of the Vital Few" - whereby 80% of crimes are committed by 20% of criminals, or 80% of useful research results are produced by 20% of the academics, and so forth. In some cases such "80-20" tendencies do emerge, and a Pareto distribution curve is a fuller representation.
Other names
The following are names given to the implementations of the vitality curve concept.- forced ranking
- forced distribution
- rank and yank
Rank-based employment evaluation
Jack WelchJack Welch
John Francis "Jack" Welch, Jr. is an American chemical engineer, business executive, and author. He was Chairman and CEO of General Electric between 1981 and 2001...
's vitality model has been described as a "20-70-10" system. The "top 20" percent of the workforce
Workforce
The workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
is most productive, and 70% (the "vital 70") work adequately. The other 10% ("bottom 10") are nonproducers and should be fired
Termination of employment
-Involuntary termination:Involuntary termination is the employee's departure at the hands of the employer. There are two basic types of involuntary termination, known often as being "fired" and "laid off." To be fired, as opposed to being laid off, is generally thought of to be the employee's...
. Rank-and-yank advocates 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.
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"."A" players
"A" players, Welch claimed, are- filled with passion
- committed to "making things happen"
- open to ideasIdeaIn the most narrow sense, an idea is just whatever is before the mind when one thinks. Very often, ideas are construed as representational images; i.e. images of some object. In other contexts, ideas are taken to be concepts, although abstract concepts do not necessarily appear as images...
from anywhere - and blessedBlessingA blessing, is the infusion of something with holiness, spiritual redemption, divine will, or one's hope or approval.- Etymology and Germanic paganism :...
with lots of "runway" ahead of them, - have charismaCharismaThe term charisma has two senses: 1) compelling attractiveness or charm that can inspire devotion in others, 2) a divinely conferred power or talent. For some theological usages the term is rendered charism, with a meaning the same as sense 2...
, 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 EnergyEnergyIn physics, energy is an indirectly observed quantity. It is often understood as the ability a physical system has to do work on other physical systems...
levels - can Energize others around common goals
- the "Edge" to make difficult decisions,
- the ability to consistently Execute, or deliver on their promises
- very high Energy
"B" players
The vital "B" players may not be visionaryVisionary
Defined broadly, a visionary, is one who can envision the future. For some groups this can involve the supernatural or drugs.The visionary state is achieved via meditation, drugs, lucid dreams, daydreams, or art. One example is Hildegard of Bingen, a 12th century artist/visionary and Catholic saint...
or the most driven, but are "vital" because they make up the majority of the group.
"C" players
"C" players are nonproducers. They are likely to "enervate" rather than "energize", according to Serge Hovnanian's model. ProcrastinationProcrastination
In psychology, procrastination refers to the act of replacing high-priority actions with tasks of low-priority, and thus putting off important tasks to a later time...
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.
Consequences
Welch advises firing "C" players, while encouraging "A" players with rewards such as promotions, bonuses, and stock options.Criticisms of rank-and-yank
The model assumes that the players do not change their rating. 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
Human behavior
Human behavior refers to the range of behaviors exhibited by humans and which are influenced by culture, attitudes, emotions, values, ethics, authority, rapport, hypnosis, persuasion, coercion and/or genetics....
. Among randomly selected people assigned to a task, such a model may be accurate. They contend, however, that at each iteration, 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
Workforce
The workforce is the labour pool in employment. It is generally used to describe those working for a single company or industry, but can also apply to a geographic region like a city, country, state, etc. The term generally excludes the employers or management, and implies those involved in...
.
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.
This is a competitive model of organization. The criticisms of both the moral
Moral
A moral is a message conveyed or a lesson to be learned from a story or event. The moral may be left to the hearer, reader or viewer to determine for themselves, or may be explicitly encapsulated in a maxim...
ity and actual effectiveness of such a dog-eat-dog method of social cohesion apply. Challenges to the model include: "C" player selection methods; the effect of office politics
Office politics
Workplace politics, sometimes referred to as Office politics is "the use of one's individual or assigned power within an employing organization for the purpose of obtaining advantages beyond one's legitimate authority...
and lowered morale
Morale
Morale, also known as esprit de corps when discussing the morale of a group, is an intangible term used to describe the capacity of people to maintain belief in an institution or a goal, or even in oneself and others...
on productivity, communication, interoffice relations; and cheating. Rank-based performance evaluations (in education and employment) are said to foster cut-throat and unethical behavior. University of Virginia
University of Virginia
The University of Virginia is a public research university located in Charlottesville, Virginia, United States, founded by Thomas Jefferson...
business professor Bruner wrote: As Enron
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
internally realized it was entering troubled times, rank-and-yank turned into a more political and crony
Cronyism
Cronyism is partiality to long-standing friends, especially by appointing them to positions of authority, regardless of their qualifications. Hence, cronyism is contrary in practice and principle to meritocracy....
-based system .
Rank-and-yank contrasts with the management philosophies of W. Edwards Deming
W. Edwards Deming
William Edwards Deming was an American statistician, professor, author, lecturer and consultant. He is perhaps best known for his work in Japan...
, whose broad influence in Japan
Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...
has been credited with Japan's world leadership in many industries, particularly the automotive
Automobile
An automobile, autocar, motor car or car is a wheeled motor vehicle used for transporting passengers, which also carries its own engine or motor...
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.
Management consulting
Rank-and-yank-like models are common amongst management consulting firms, including public accounting firms (e.g., the "Big 4"), often referred to as an 'up or out' approach to evaluations. Specifically, AccentureAccenture
Accenture plc is a global management consulting, technology services and outsourcing company headquartered in Dublin, Republic of Ireland. It is the largest consulting firm in the world and is a Fortune Global 500 company. As of September 2011, the company had more than 236,000 employees across...
as well as PricewaterhouseCoopers
PricewaterhouseCoopers
PricewaterhouseCoopers is a global professional services firm headquartered in London, United Kingdom. It is the world's largest professional services firm measured by revenues and one of the "Big Four" accountancy firms....
use an 'up-or-out' model with their staff: if employees are not 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).
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.
GE
GEGê
Gê are the people who spoke Ge languages of the northern South American Caribbean coast and Brazil. In Brazil the Gê were found in Rio de Janeiro, Minas Gerais, Bahia, Piaui, Mato Grosso, Goias, Tocantins, Maranhão, and as far south as Paraguay....
is by far the most famous company to utilize this form of corporate management. However, since Jack Welch
Jack Welch
John Francis "Jack" Welch, Jr. is an American chemical engineer, business executive, and author. He was Chairman and CEO of General Electric between 1981 and 2001...
's departure from the company, less emphasis has been placed on eliminating the bottom 10% and more emphasis placed on team-building.
Enron
EnronEnron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. Before its bankruptcy on December 2, 2001, Enron employed approximately 22,000 staff and was one of the world's leading electricity, natural gas, communications, and pulp and paper companies, with...
traders also commonly were under the threat of being fired if they did not produce the desired results. Though the accounting scandals are most credited with the demise of the company, it has later come out that part of the 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
Enron: The Smartest Guys in the Room
Enron: The Smartest Guys in the Room is a 2005 documentary film based on the best-selling 2003 book of the same name by Fortune reporters Bethany McLean and Peter Elkind, a study of one of the largest business scandals in American history...
.
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.Microsoft
Starting in 2006 MicrosoftMicrosoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
has used a Vitality Curve despite intense internal criticism. Mini-Microsoft
Mini-Microsoft
Mini-Microsoft is the name of a blog maintained by an anonymous author who appears to be a Microsoft employee. The term is also generally used as a pseudonym for the author of the blog, although on the site the author is listed as "Who da'Punk"...
, an anonymous blogger internal to the company, made "the curve" a frequent topic on his blog.
In a memo to all Microsoft employees dated April 21, 2011, chief executive Steve Ballmer
Steve Ballmer
Steven Anthony "Steve" Ballmer is an American business magnate. He is the chief executive officer of Microsoft, having held that post since January 2000. , his personal wealth is estimated at US$13.9 billion, ranking number 19 on the Forbes 400.-Early life:Ballmer was born in Detroit, Michigan to...
annouced the company would make explicit the Vitality Curve model of performance evalution: "We are making this change so all employees see a clear, simple, and predictable link between their performance, their rating, and their compensation." The new model has 5 buckets of pre-defined size (20%, 20%, 40%, 13%, and 7%), and management simply ranks. All compensation is pre-defined based on the bucket, and employees in the bottom bucket are ineligible to move positions with the understanding they will soon be yanked.