This Vanity Fair and Forbes article details how Microsoft stifled innovation in product design and development by using a rigid and hierarchical performance review process. Microsoft used a review process known as “stack ranking”, which forces each business unit designate a percentage of employees as top performers, good performers, average performers, and poor performers.
Here’s what a former Microsoft employee said about the process:
If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, 2 people were going to get a great review, 7 were going to get mediocre reviews, and 1 was going to get a terrible review[.]…It leads to employees focusing on competing with each other rather than competing with other companies.
Interesting how a fairly routine process like performance reviews can seemingly have a profound impact on a company’s success. In a 2009 post I detailed steps companies can take to foster a culture of creativity and innovation; creative and innovative companies have (1) high levels of interaction, discussion, and debate, (2) interpersonal and intergroup relations defined by trust, cooperation, and a sense of safety, and (3) senior management that’s open to new ideas and improved ways of working, and proves its openness by encouraging such actions and funding them when meritorious.
Similarly, this recent research details how small firms can effectively compete with larger firms when the small firm CEO works closely with internal teams. The researchers found that if a firm wants to excel at product innovation then the CEO should work closely with R&D department employees. If a firm wants to excel at process innovation, then the CEO should work closely with managers and non-managerial employees in the production department. The optimal mix, the researchers found, is where a firm creates small agile teams within the respective divisions and the CEO is routinely involved in leading the initiatives these teams are tasked with tackling. The researchers, however, did not measure the effectiveness or quality of the innovation output, only that ideation generally increased. Nevertheless, it seems to me that a small firm would have a better shot at out-performing its competitors with a surplus of ideas rather than a dearth of such.
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