Jack Welch is famous for implementing GE's brutal performance evaluation, where employees are ranked against each other and the bottom 10 percent of the list gets booted every year. Such "forced ranking" systems have long been controversial, with experts divided on if they are truly effective.
New research from the University of Michigan and the University of Haifa says that rank-and-fire management may be a good way to shoot yourself in the foot. A summary, released today on the University of Michigan website, reports the gist of the problem:
"While highly ranked employees may be more competitive and productive through simple self-selection, the championing of forced rankings fails to anticipate how competitive forces may ultimately inhibit the profit-maximizing exchange or pooling of information and resources among those 'star' employees," Garcia [professor at the Ross School of Business] said. [...]
Although their findings suggest that forced ranking does not always diminish the likelihood of maximizing joint gains within an organization, they do reveal a significant and overlooked weakness of this new and increasingly popular management system.
In other words, the dog-eat-dog culture that forced ranking creates may discourage collaboration among a firm's best employees. A better alternative, the researchers say, is to set a predetermined performance metric based on a particular task or project.
