Forced Ranking: Making Performance Management Work

Posted on January 27, 2012 by David

By Dick Grote
Harvard Business School Press, 2005
276 pages, $35.00

A lot of CEOs are going to like this book. Dick Grote, chairman and CEO of Grote Consulting Corporation, is a performance management consultant with a broad range of experience in corporate America. In Forced Ranking, he makes a well-argued and detailed case for the careful, selective implementation of the 20/70/10, “rank and yank” formula for differentiating people — a concept associated with Jack Welch and General Electric Company. Although Mr. Grote shares Mr. Welch’s tough-minded passion for the technique, his enthusiasm is tempered by his experience with performance management systems in many different organizations.

The author makes it clear that forced ranking (of which the 20/70/10 formula is but one example) is needed because most conventional performance appraisal systems are deficient, especially when it comes to differentiating management talent, which, in his view, is the key to building a culture of performance. This deficiency is rooted in the widespread reluctance of managers to give their subordinates poor performance ratings. The result is ratings “inflation” and a work force with members whose performances, like the children in Garrison Keillor’s fictional town Lake Wobegon, are all “above average.” This tendency can be remedied to some extent by top management’s insisting on the forced distribution of ratings, so that only a few people can qualify for superior appraisal ratings. Mr. Grote devotes an entire chapter to how to make this “tweaking” of the performance appraisal system effective, but he clearly thinks it inferior to a full-blown, rigorous talent assessment system.

Although Mr. Grote is a vocal advocate for forced ranking, he is sensitive to the many criticisms that have been made of it, and he is precise about how and when it should be used. His guidelines: First, it should be used only in organizations with more than 100 employees; managers in smaller businesses should be able to identify their “stars” and “duds” without a formal, mechanistic system. Second, it is but one element of performance management, and most organizations would be better served by getting their performance appraisal system in order. Third, in most organizations, forced ranking should be performed at a different time from regular performance appraisals, and for only a limited period, such as two or three years. This is particularly true for systems in which the bottom performers are fired. If “rank and yank” is used for too long, the process will begin to cut muscle and bone rather than fat. Last, forced ranking should be applied only to those individuals with the greatest impact on the organization’s results — senior management and specialist individual contributors — and if it’s phased in, it should start at the top.

Mr. Grote’s book will not end the controversy over forced ranking as a management technique: The visceral feelings of fans and critics run too deep. But its balanced approach, complete with model memos and scripts for managers, FAQs about forced ranking programs, and discussion of the legal pitfalls, make it an essential reference for managers who are concerned about the management of performance in their organizations.

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