Microsoft, Innovation, and its HR Failure
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Blue Hill Research analyzes the implications of Microsoft's stack ranking policy. Is it possible that a vitality curve based HR policy is enough to undermine the success of a technology titan?
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I want to thank everyone who attended this Lunch & Learn Meeting at USAA in San Antonio, TX. Favorite this presentation if you like it. I welcome your comments regarding this topic.
Overview
Despite the similar names, there are big differences between product management and project management. The confusion between the two roles is common and potentially harmful to organizations who do not acknowledge the distinction. This is often the case for companies that develop web-based and technology products.
A common challenge is that the two roles often appear to be at odds with each other. A product manager may want to add a lot of features to meet customer needs, but the project manager may want to limit the scope so that the project is delivered on time and under budget. Often traditional definitions mischaracterize the project manager as singularly focused on getting a specific product release finished on time and under budget without any concern as to whether it meets the needs of the market or customers.
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- 1. ©2013 Blue Hill Research. All Rights Reserved. ©2013 Blue Hill Research. All Rights Reserved. Microsoft and Stack Ranking James Haight, Research Analyst, Blue Hill Research Hyoun Park, Chief Research Officer, Blue Hill Research 1
- 2. ©2013 Blue Hill Research. All Rights Reserved. Microsoft’s Stack Ranking • Derived from “vitality curve”popularized by former GE CEO Jack Welch • Employees are internally ranked and broken into three buckets: the top 20%, the middle 70% and the bottom 10%. Top 20% Middle 70% Bottom 10%
- 3. ©2013 Blue Hill Research. All Rights Reserved. The Bottom 10% • At the end of the year, employees in bottom 10% are encouraged to improve or leave. • The theory is that this promotes a culture of high- performers and sheds those weighing the firm down. A Players - Executives B Players - Individual Contributors Bottom 10% - Dead Weight
- 4. ©2013 Blue Hill Research. All Rights Reserved. 4 The Big Question “How is it that a company made up of some of the brightest minds in the industry can deliver us products like the Dare, the Zune and the Surface RT?” Is stack ranking or the vitality curve the reason? Does the vitality curve not work in tech firms?
- 5. ©2013 Blue Hill Research. All Rights Reserved. Stack Ranking hasn’t always hurt Microsoft From 1997 to 2003, Microsoft outperformed all other companies in this group and outgrew the S&P 500 by almost 10-fold.
- 6. ©2013 Blue Hill Research. All Rights Reserved. So, What Changed? • When Microsoft dove in to the consumer space, it lacked the creativity and imagination demanded by the consumer market outside of the Xbox. • Stack ranking creates internal competition where collaboration is harmful if it helps your peers surpass you. “Microsoft has staked its future on gaining consumer consciousness and mindshare”
- 7. ©2013 Blue Hill Research. All Rights Reserved. Other Challenges with Stack Ranking • The bottom 10% is difficult to calculate in early-stage products • In Microsoft any given group of individuals may be entirely composed of A players or potential A players • Where differentiated success can be difficult to measure, but 10% must be cut, the Vitality Curve does more harm than good.
- 8. ©2013 Blue Hill Research. All Rights Reserved. Microsoft Stack Ranking has outlived its usefulness • Stack Ranking is most useful to promote a specific skill set or results valued by the company • The past decade has proven that this focused model is no longer the key for Microsoft's future. • Given the varied areas where Microsoft now competes, it is easy to see how Microsoft has voluntarily molded a workforce that is mismatched to handle its current challenges.
- 9. ©2013 Blue Hill Research. All Rights Reserved. Conclusion “Microsoft must abandon the stack ranking practice or risk a continued misalignment of employee skills and company ambitions.” “Although Microsoft is composed of A level talent based on historical stack ranking, the Microsoft of today will not be successful if run by the A players of a decade ago.”
- 10. ©2013 Blue Hill Research. All Rights Reserved. Thank you! To join the conversation, follow us on 1 Download our full research report or read our blog on Microsoft’s stack ranking