All about GE’s new performance management process

Wherever we look into these days, people can’t stop talking about the inadequacy that traditional performance management processes bring with them. Traditional performance reviews have been loathed by employees everywhere. It has been dumped by organizations which are world leaders and the expectation that the rest of the world will follow suit is giving a lot of hope to the workforce. Owing to its numerical ratings, annual performance reviews are widely disregarded by employees and this time of the year is usually a dreaded one.

Category leaders like Adobe, Accenture, IBM and Microsoft have dumped rankings as a performance review processes and moved on to setting up newer mechanisms in place. But the classic case is that of General Electronics as it has completely eliminated its stack ranking process. GE under the leadership of Jack Welch started the stack ranking process back in the 80’s and 90’s. The reason why this has grabbed the eyeballs of many is because GE is one organization which had traditionally swore by the forced ranking” process and was one of the pioneers in making it popular in the HR circle. Because GE widely professed this practice, many companies followed suit over the years. 

What was the stack ranking performance management process all about?

For three decades now, GE has widely advocated and championed a rigid system, popularly known as “rank and yank” which was the brainchild of former CEO Jack Welch (in his tenure between 1981-2001). This system focused on condensing the performance of an employee over an entire year to one single number between 1 to 5 on which they were judged and compared with their peers. Based on a set of numbers assigned to employees, they were divided into buckets – top 20%, middle 70% and the low-performing 10%. The bottom 10% of the performers would be fired every year as they were the ones with the lowest scores and hence the bad apples, considered unproductive and of no use to the business (Ouch!). This kind of forced ranking however was dumped by GE around 10 years ago, but numbers were still assigned to employees every year in their performance reviews. These numbers also decided performance appraisals, promotions and awards and recognitions for employees.

“It existed in more or less the same form since I started at the company in 1979. But we think over many years it had become more a ritual than moving the company upwards and forwards.”

~ Susan Peters, Head of Human Resources, GE

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Reason for dumping “rank and yank?”

The millennial workforce’s changing preferences and the rise of mobile technology are the fundamental reasons why this age old ritual has been debunked by such corporate giants. When asked about the reason for the new process in place, Susan Peters said the following to Quartz-

“The world isn’t really on an annual cycle anymore for anything. I think some of it to be really honest is millennial based. It’s the way millennials are used to working and getting feedback, which is more frequent, faster, mobile-enabled, so there were multiple drivers that said it’s time to make this big change.”

Other HR leaders also share the opinion that the new age and new workforce have demands which a traditional review process like that of GE cannot meet. And hence, organizations need to change with time and keep altering their practices along with the new systems and preferences in place. Performance management processes should respond to the dynamic nature of organizations, workforce and changing cultures, rather than follow a static model. Adobe HR head Donna Morris led the company transition from a traditional review ratings told the Quartz:

“When you think of the leadership association people have with Jack Welch and the ranking and rating, it suited a certain time, it does not suit today and today’s worker. In my opinion, it’s a process that looks in the rear view mirror, that’s focused on what you’ve done a year ago. That just isn’t current with how I think we’re working and how many of the employees that we’re looking to attract or grow have been raised.”

The major reason for the elimination of this process is the way it affected the mind of employees. Research has shown that the response that the human brain gives to criticism of any kind is the same type of neural response that they give when confronted with some kind of physical danger.Overtime, HR professionals worldwide have realized that this way of grading employees gives rise to frustrated employees who dread that part of the year where they are subjected to performance review cycles. The stack ranking system at GE in a way forced managers to forcefully rate their employees and indicate their performance levels. Managers soon developed a habit of giving most employees an average score of 3 (out of 5). This number also decided compensation decisions and promotions of employees.

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Apart from this, forced ranking also affects human growth. It affects the way employees view growth as popular performance management practices favor a fixed mindset. Bottom performers are asked to leave without even trying to understand what caused their weak performance or providing them with an opportunity or environment to learn.

Feedback – the mobile way

The new performance management system at GE is feedback centric. They have developed a mobile app called PD@GE which enables frequent feedback. The app provides a platform to define near term goals for employees. Managers are expected to have frequent conversations, named “touchpoints” with their employees, highlighting how far they are from reaching their predefined targets. This app is currently being used by 250000 to 30000 employees in GE. Susan Peters estimates that a whooping 80000 people will be using that app by the end of 2016! As per Raghu Krishnamorthy, who is the in-charge of GE’s Crotonville management training center, the most important feature of this app is aiding GE’s cultural change and ensuring continuous conversations. The app and its mobile technology is not as important as the intention behind it – to foster conversations and engagement.

The way ahead

This revolutionary system of performance management adopted by GE has been in the news for all the reasons and the impact it has on actual motivation levels of employees will be worth documenting. However, advocates of the traditional ranking process might raise the challenges that such a new system might create. For example, managers will still need to evaluate their employees. In the absence of traditional methods, managers might resort to ranking employees at an informal level. One way of overcoming such a practice could be by investing in leadership training of managers so that they get used to the new system of performance management.

Apart from such category leaders creating their own performance management tools and systems, new products are also coming up with solutions for setting up effective performance management systems in place. Once such product is Capabiliti by Qustn which is a mobile first SaaS platform that enables continuous feedback and conversations before and after employee trainings between employees and their managers. This has helped their clients understand what employees really feel about training programs and implement such changes accordingly.

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