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Fire 10% of your company – today!

Stack Ranking, Differentiation or a Vitality Curve. Three different names for the same thing – a theory devised and implemented by ex-General Electric CEO Jack Welch, designed to get the most out of your employees.

We’ve taken inspiration from Mr Welch before, but this idea runs on the belief that you should divide your business into 3 sections – a top 20%, a middle 70% and a bottom 10%. Then, if that bottom group consists of the same group of people for any length of time, it’s time to move them on from the business.

This is a practice that I’m a firm believer in.

A common criticism of this approach is it’s ruthlessness; just getting rid of a large chunk of your businesses staff, which is neither sensible or sustainable – that’s not the case.

The Top 20%

“What I’m interested in is investing in people” – Arthur Rock
 

Let’s start at the top.

In most, if not every business, there are a group of top performers that will collectively generate most of your revenue. The process of differentiation works on the idea that these people should be acknowledged and rewarded with bonuses, shares or whatever else will motivate them to keep doing what they’re doing and stay happy within the business.

Secondly, this group are to be used as inspiration for those below them in the middle 70% of the business. They should be used as a motivator to help people increase their sales, revenue or practices to emulate them, and become a part of the ‘club’.

The trust, reward and acknowledgement of this top group of employees should help to replace an attitude of accepted mediocrity with one of ambition. Maximising the influence of this top group should also help new hires (most of whom fall into the next band down) aspire to improve their performance.

The Middle

“Take the middle 70% and tell them what they need to do to get into the top 20%” - Jack Welch

As we take a step down into the middle of the graph, this is a group that should be key to the business. However, if that top group, per head, is doing so much more, membership of this group should be an absolute bare minimum. 

By pure numbers, and by having their boots on the ground – whatever your industry - they are the group that keeps the company ticking over and the doors open, by maintaining the average performance level of the business.

The real skill comes from keeping this 70% happy, but still raising that average level of performance. To do this, the differentiation principle is based on appraisals, and using them properly, to inspire and not de-motivate.

Instead of a “so X is doing better than you, why aren’t you stepping it up?” Time spent in appraisals should be utilised so employees leave with their head held high, ready for the challenge that the next month or quarter will bring.

The Bottom 10%

"Failing to differentiate among employees — and holding on to bottom-tier performers — is actually the cruellest form of management there is."

When addressing those at the bottom of the chart, it’s important that this group isn’t devised overnight. According to Welch, the system of appraisal and targeting should be in place for a significant amount of time before you start asking employees to look at options elsewhere.

Fundamentally, if an employee has consistently performed in the bottom 10% of a business after regular and consistent appraisals in which reasonable goals have been set, then it should be time to have a chat about moving on.

This isn’t condemning someone to a life of unemployment, it just means that they’re being given the opportunity to excel in another role that they should be far better suited to. To quote Mr Welch again:

“No one wants to be in an organization where they aren’t wanted. One of the best things about differentiation is that people in the bottom 10 percent of organizations very often go on to successful careers at companies and in pursuits where they truly belong and where they can excel.”

Personally, I think that this is a system that works. It’s a sensible way to run a business and ensures high standards, and a strong level of performance is maintained. Bearing in mind that this isn’t just a ‘rank and yank’ system as some critics have called it is important to realising the system’s value.

I’m really interested to hear other’s thoughts on this. Do you agree with this system, and have (or would) you implement this in your business?

Please let me know in the comments!

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