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Did Jack Welch Destroy US Productivity?

Did Jack Welch Destroy US Productivity?

Welch institutionalized failure by promoting a system in which U.S. employees shot each other down instead of cooperating, and which led to great employees being forced out of large companies. It could go to why GE fell again after Welch left and is a shadow of what it once was, why firms like Microsoft have had a decade of zip, and it may even explain why the U.S. has been losing out massively to China this last decade.

By Rob Enderle
07/16/12 5:00 AM PT

I was doing background on a recent piece on Forced Employee Ranking, a process that ensures incompetence in companies, and found that it was sourced, as a failure, to Jack Welch -- the guy credited with turning around GE. I began to wonder if much of what he was credited with actually created what now appears to be a cancer in that company, and in Microsoft, and that the reason folks haven't been able to fix it is because it came from such a well-regarded expert. But given how widespread this practice is, and how stupid and suicidal it has become, I now wonder if Jack should be credited with crippling the U.S. -- and I'll bet his practices weren't limited to these shores.

By the way, what started my search was this piece in Vanity Fair on Microsoft's lost decade. It is worth reading if you missed it. It is interesting to note that in Steve Ballmer's response, he doesn't address Forced Ranking.

I'll touch on that and close with my product of the week: a website where you can outfit yourself as a Jedi and be better prepared for the next Comic-Con.

My Background

There are two things in my background that likely should be mentioned at the start of this. While I had a broad educational background including computer science, marketing, and management, my passion initially was in manpower management which later became HR. However, at the same time I was graduating, something called the "Equal Employment Opportunity Commission" was created, which pretty much outlawed most of what I had learned with regard to placing employees in jobs best suited for them, and I changed focus. I still remember much of the theory, though, and I've tried over the years to choose companies to work for that embodied good practices.

The other thing is I was an early recruit to Microsoft -- really early -- but instead I took a job working for my family because, well, it was less risky. As a result, I tend to look at Microsoft as the path not taken and imagine myself locked in that company hoping for someone outside to help management find a way to do the right thing. This near unreasonable passion gets me into some trouble from time to time but I think my heart is in the right place.

Finally, at one time I considered Steve Ballmer to be a friend. He saved my butt once -- granted, he had put it in the wringer in the first place, as did Bill Gates. So I feel a connection to this company, and I also feel that had I taken that job, I'd have been able to prevent Ranking and Rating from ever being implemented (this is likely pure fantasy).

Forced Ranking

This has got to be one of the stupidest things anyone has ever come up with. I can see how Welch came up with it to address the problem of GE being a near complete mess with regard to employee reviews when he took it over, but it institutionalizes low quality.

You see, performance evaluations have two purposes: They provide an assessment of how an employee is actually doing, and they create the basis for performance-based rewards. They are how you measure and later ensure quality.

Now if you were building a manufacturing line, you would set a minimum quality standard and toss out or remanufacture anything that didn't meet it. If you wanted a higher level of quality, you would move the standard. You would never, ever, say that your goal was X percent of failures. If you did, people would make sure that percentage failed and either toss out perfectly good things or allow bad things through to hit the percentage.

Don't get me wrong. On this latter point, if you measure people on failures, there is a tendency to let bad stuff through -- but setting a hard percentage institutionalizes failure, and that's what forced ranking does to employees.

If you do it across an organization, it's bad, but if you do it within a department, it simply means the manager hires bad employees on purpose to meet the metric or the metrics have little to do with performance. I've seen what amounts to performance lotteries -- managers that traded high reviews for sexual favors -- as well as reviews on rotation, where number ones and twos swap every review period to be fair.

It's insane. Now that would be bad enough, but if you know that only two people in your group are going to get good reviews and the review resulted in a reward you wanted, you also have two other options: You can cheat, or you can knock the leader down -- and these aren't mutually exclusive.

So you tend to create a high number of folks who have learned to take excessive credit, parlay social skills into reviews, or destroy the true top performers. And retention of good people goes down the tube.

In a recent Vanity Fair article, this practice was credited for Microsoft's lost decade but it may have crippled the post-Ronald Reagan U.S.

Wrapping Up: Jack Welch and Institutionalized Failure

If I'm correct, what Welch did was institutionalize failure -- a system in which U.S. employees shot each other down instead of cooperating, and which led to great employees being forced out of large companies.

Given that Ranking and Rating tend to come in when a company formalizes HR, or about the time they are a few years old, it could also explain the failures of so many promising startups as they grew to be larger firms.

It could go to why GE fell again after Welch left and is a shadow of what it once was, why firms like Microsoft have had a decade of zip, and it may even explain why the U.S. has been losing out massively to China this last decade.

In the end, Jack's legacy may not be GE's success but its failure, and along with it the loss of the productivity of a nation. Jack was brilliant -- but like all brilliant people, he too made mistakes. Forced Ranking may be one of them, and maybe it's time to put a stake in it before it wipes out the U.S. Apparently Yahoo uses Forced Ranking. Enough said.

Product of the Week: Become Your Own Jedi

Product of the Week

Every once in a while, I run into something that is just fun to talk about and the Jedi tool at Museum Replicas is just fun. Basically, it is a clothing site where you can design a Jedi ensemble that is uniquely yours and then buy it for that special event when you want to convince your friends you are cool or most women you are a complete idiot.

There is another part of this site focused on Steam Punk stuff I'm personally more attracted to, and they have an Air Pirate Sword that looks like bad blending of a chain saw that I have my eye on.

star wars become your own jedi

Now becoming a Jedi isn't cheap. On the video that teaches you how to use the tool, the outfit the instructor creates appears to cost about US$750. But given Luke Skywalker had to fix a Droid and have a little guy with big ears ride him like a horse for the better part of his life to get the same thing, it is pretty cheap in comparison. Granted, this price also doesn't include the light saber, but you'd likely put your eye out with that.

And think of it this way: If your firm does Forced Ranking and you want to take one for the team, what better way to end up in that bottom 7 percent or to announce your departure for greener pastures than to wear a Jedi outfit into work? As a result, the Become Your Own Jedi tool is my product of the week.


Rob Enderle is a TechNewsWorld columnist and the principal analyst for the Enderle Group, a consultancy that focuses on personal technology products and trends.


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