microsoftway

In the startup world, I’m prone to saying, “You can take the boy out of Microsoft, but not the Microsoft out of the boy.” This week I’ve been tracking the controversy around Microsoft’s abolition of the old stack-rank review system, and couldn’t help but have very strong feelings on the matter despite having left the company back in 2004. I am also seeing a lot of strong feelings from our GeekWire readers, including people who are currently at Microsoft or have recently left. As chairman and co-founder of GeekWire, I think this is awesome. Discourse in our community on this subject is great.

But as a former Microsoft manager, I think the issue is really complicated.

Jonathan Sposato
Jonathan Sposato

My own 12 years at Microsoft were entirely under the “old old” review system, using a 2.5 to 5.0 scale, where stack-ranking exercises were a common practice amongst managers. In fact, we used to refer to the broader stack-ranking exercises, when teams would merge their respective lists, as ‘horse trading.’ I hated these horse-trading meetings. I would’ve rather gotten a root canal while getting my legs waxed. They took time away from building products.

In my opinion, the most challenging aspects of the old system were:

  • You could have a uniformly high functioning team of rockstars but *someone* had to be in the middle and bottom. This sucked because some very good people got told they weren’t good enough.
  • Knowing this, people often over-functioned in unsubtle ways before every review cycle to make sure their hard work was known, and credit received. Presumably this is one of the things that the new system is seeking to address.
  • Merger exercises with other team managers consisted of you arguing for your people being higher in the larger merged stack, at the expense of others whom you did not manage or know very well. Managers were, in essence, making data-blind arguments about others’ careers.

In the words of one GeekWire reader: “At worst it fostered lying about your direct reports’ qualities; at best it forced managers to scour and find something, anything that could be used as a mark against hard-working employees.”

So it was absolutely not a perfect system. Absolutely not. But there were *some* advantages.

  • You always knew who was critical to your business, and who was less so. I think this is a best practice of any business leader (startup founder or division head within a big company). You should always know who you can’t live without. There have been some unfortunate cycles of layoffs at parts of Microsoft due to business contraction, and at those times you simply need to know which assets (tech and personnel) are necessary to keep and which are not.
  • The system taught new managers how to make very tough tradeoffs. The old review system taught at least this young manager that sometimes the business outcome of something can feel in conflict with the social or organizational outcome. In its most abstract form this is just simply an important business and life skill.
  • Gosh darnit, you simply can’t promote everyone, or give everyone the same raise every review period. You have to make financial tradeoffs. As another GeekWire reader put it: “Now we don’t have to tell 50% of the people they performed below the mean of performance … but everyone gets the same financial result anyway? This may make people feel better … but it’s hard to see how it will drive better individual performance. Now it will be much easier for managers to say ‘everyone’s great’ and ignore the mathematical fact that half of the people are not above average.”

Fair points, all. But in the final analysis, If I had to choose, I’d choose the new system, which will let managers hand out raises and bonuses at their discretion, within the limits of their overall budget for compensation.

The bottom-line is this; no review ‘system’ comprised of human beings is going to be perfect. But at least giving managers more discretion and power to allocate reward and compensation incentives within their teams will give them more leeway to manage teams in accordance with their particular business circumstances, and to do so in a management style that befits the manager or culture of the team.

jonspo3Moreover, change is good. I absolutely applaud the company’s ability and willingness to change. Change is what this company needs right now. One of the biggest management challenges at Microsoft has always been the constant cat-herding of super-high-functioning Type A employees to align to a single mission (be that a product vision, or even just a process for product creation). It can take 20 minutes for a group of partner level engineers to agree where to have lunch. Thus, I cannot imagine how supremely difficult it must have been for Lisa Brummel to have spearheaded this fundamental change.

Whether we think it’s too late, too soon, not enough, or too much … I’m not sure that it really matters long term. The key is that change happened, and in a specific vector to improve both morale and collaboration. Both things are precisely what the company now needs. Microsoft finally gets to A/B test the new solution vs. the old. If this new system is wrong, then by all means they should ‘fail fast’ and figure out an even better solution.

But lastly I’ll add, a change in a review process alone isn’t going to change culture. How do I know this? After Microsoft I actually worked for another large, successful, publicly traded tech company with a rigorous stack ranking system, but yet colleagues there were uniformly collaborative, collegial, communicative, and just dang nice. And yes, every quarter you’d sit in a room with other managers and the division VP to stack rank super-smart folks and make very tough tradeoffs.

This company was called Google, and they created products that were just as good. Perhaps the difference was that the workforce at Google was 20 yrs younger, more earnest, and didn’t have big mortgages to worry about. Perhaps it’s simply the well-documented differences between how millennials were raised vs. us genX-ers and boomers. Googlers have also never suffered a major drop in the stock price like Microsoft did, avoiding the fear that can create in the workforce. My point isn’t about Google vs. Microsoft, but about how review systems and culture are more independent, than dependent.

I suspect every current manager at Microsoft knows this by now, but a change to a more collaborative and less abrasive culture can only come about when individuals refactor their work styles authentically. This is the stuff that’s baked into the DNA of the people you hire, and may not be changeable overnight. It’s trusting each other, and being honest. It’s giving colleagues the benefit of the doubt. It’s avoiding going behind each other’s backs. It’s communicating openly and dealing with conflict early and accurately. It’s erring on the side of over-communicating with others, etc. The sole reliance on a systemic fix takes ownership of personal behavior away from the worker.

So in addition to changing how it reviews employees, Microsoft should also re-train some of them. And even further, Microsoft will also need to change how it recruits new ones.

And in all these regards, I sincerely and earnestly wish folks at Microsoft the best of luck. I’m rootin’ for you. All your alums are rootin’ for you. Your shareholders are rootin’ for you. The tech community is rootin’ for you. Let’s do this!

Jonathan Sposato worked at Microsoft from 1992 to 2004. He sold his startup Phatbits to Google in 2005, and then later sold another startup, Picnik, to Google in 2010. He is currently the chairman of GeekWire, PicMonkey, and Vizify, all companies that do not stack rank.

Comments

  • Bingo

    Great commentary. I’ll be really interested to see how Microsoft forces managers, particularly development managers, to genuinely evaluate employees, particularly mediocare and poor performers. At least a stack rank forces the lowest performers to be identified, albeit with lots of problems particularly when you have good performing teams. And stack rankings are not uniformly bad. I have a number of colleagues and friends who were washed out by stack ranking at GE but still consider it the most positive, formative experience of their careers.
    Most development managers I’ve worked with at a number of companies will just give almost all of their teams an ok review to avoid difficult conversations. I’ve literally seen reviews from some managers where 20 reviews are all nearly identical but for the names.
    In a company that needs fresh thinking and fresh blood like Microsoft, stack ranking also at least forces turnover. It is easy to see Microsoft becoming even more insular now and there being less turnover.

  • @JLCBeck

    Excellent. I have been saying this will mean nothing unless MSFT truly re-trains managers to be leaders. Any system/process is only as good as the people behind it, especially a review process.

    • matt62

      I totally agree, MS has far too many managers and not enough leaders. IMHO for this change to bring value team managers need to grow into leaders that can articulate clear objectives and outcomes. Tethered to that is solid understanding of roles that include leads and contributors. To me that key, contributors need to know that they get the same recognition for success or failure.
      If there is a concern is that I have not heard or seen any details that describes a change in evaluation for managers.

  • http://twitter.com/surilamin surilamin

    Kudos to some balanced commentary, much more so than other sites.

  • FirstHandExp

    The ranking system is there to support Microsoft’s up-or-out culture. It’s not age discrimination (wink), just an emphasis on ‘career velocity’. The ranking system will change when MSFT values existing employees over new college hires and armies of (largely non-resident) disposable contractors. Waiting to see whether that happens.

  • JJ Dubray

    Jonathan,

    thank you for sharing your views on “the” system, they are very insightful.

    I would however argue that Microsoft’s lost decade (and it could definitely be a side effect of the stack ranking system) is that Microsoft engaged in “propaganda” to sell its products. Very much like Apple is doing today: Tim Cook starts all his talks with 10 minutes of “propaganda”, which I think he eventually believes himself.

    When you can’t deliver anything of value, you add a layer of lipstick and voila. In the end, Channel 9 may have well be the main reason as to why Microsoft shipped crappy products. Every Microsoft product I saw in the 2000s had a spotless comm strategy. There was always some courtisans ready to wow at the Emperor’s clothes.

    As a former Microsoft customer, and a 100% Apple customer for 3 years, I can spot that terrible trend. Its kills innovation and undermines your customer base. If Google or Amazon had a decent laptop operating system, I would switch ecosystem in a second, because I want to give my money to the most innovative ecosystem.

    In the end, if anyone has read about the Conway law [1], we should understand that organization and culture have very little to do with success. You have to focus on communication and insight. When we communicate, we cooperate, that’s what makes us human. Even Ants know that. I can appreciate that senior management might position a product or the company in the broader strategic context, but innovation can’t come from the top or any kind of organizational/cultural gimmick. Innovation can only come when we relentlessly focus on insight, communication and “co-operation”.

    [1] http://www.b-mc2.com/2013/02/03/revisiting-the-conway-law/

  • http://www.marketingeek.com/ Michael A. Parker

    It was a great insight. Microsoft has a challenge that they can win, but it is going to take some introspection. I, too, am rooting for them.

  • tryptic

    Great article and suggestions. In regards to the “most challenging aspects”, the toughest part (IMO) as a manager was when an org suddenly decided to contract, all 3.0’s were automatically on the block for a RIF. These could be great people who either got edged out of the 3.5 bucket in a merge meeting, or typically high performers who slipped during one cycle.

    Applying to other groups in the company was an option, but this wasn’t easy for specialists like a game designer or artist. Every single one of those conversations is indelibly burned into my head, these people fought & bled alongside to get the job done.

  • WW

    I worked for Microsoft for many years before moving to Amazon, where I’ve been also for a few years now. At Amazon they also have forced distribution curves and stack ranking, but for some reason that I still can’t quite put my finger on, the system works much better. There is nowhere near the level of dysfunction or despondency that I experienced at Microsoft with regards to the performance reviews. I guess execution and culture matter. I’m cautiously optimistic for Microsoft.

  • Linda S

    Well done, Jonathan! One of the issues with rating on the curve and stack ranking, is that productivity becomes zero/sum. Ideally, productivity is contagious and teams collaborate. Culturally, the curve and stack ranking really undermine both trust and productivity.

  • GS

    I was at MS for 14 years. I left primarily because of the review system. Our VP announced that anybody who got a 3.0 (doing your job but not exceeding expectations) twice in a row was going to be let go.
    Primarily the reason for decision was that stock was flat and people weren’t turning over like they had. I had spent 10 years as a manager. I had let plenty of people go who were truly failing. I always put the company first. When this announcement was made I was alarmed.

    I had one employee who had gotten a 3.0 on his last review. I had given him specific areas to fix and he had really met the challenge. He had a great year. He shipped a lot of product and had done some really great things. I have him a 3.5 on his next review.
    I was on the curve for my team. My boss was on the curve when we rolled up. Then word came down that the upper levels were not on the curve and I needed to give this guy a 3.0.
    I knew that I couldn’t do it and sleep at night because he would lose his job. So I told them to give it to me because I was done. And that is how my career ended at Microsoft.

  • fteoOpty64

    Good article. It shows that HR departments are of lowest innovation in just about every industry. They hardly improve and usually make bad decision causing more hurt to their valuable employees than helping them perform and motivating them. The worse discriminators I have seen in 30 years of industry work!. Dang problem is they have a way to “not want” a right candidate. Especially one that can “see through” their BS!.

  • SurfaceTension

    Unfortunately, the end of stack ranking didn’t save a few colleagues, who were let go early this year. They were in primarily senior roles, and perceived as strong, johnny-on-the-spot contributors, willing to pitch in and help others.The layoffs skipped over the “untouchables” – people who inflated their stats, looked out for for their own arses, and pandered to their managers and hipster teammates to get invites to the team-insider pub. They sailed through in flying colours. Morale is a shambles for the rest.

    My fear is my teammates won’t have a soft landing, if MSFT handled their
    “separation” the way they did for my chap from another division. He
    was shown the door in the 5,000-person Mass Layoff 1.0 in 2009. He got dodgy,
    conflicting info regarding severance/insurance, and finally got less than a months pay despite 13 years service.

    For my chap, there was some issue about rehire date – he left briefly cause he was worried about a girlfriend abroad, but MSFT told him they’d restore his seniority when he returned. Sadly, they did not honor it. So much for the nights, weekends, and holidays he didn’t take with his family. His loyalty resulted in being tossed out like yesterday’s rubbish from a lorry.

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