Winning (5 page)

The worst thing, though, is how protecting people who don’t perform hurts the people themselves. For years, they are carried along with everyone looking the other way. At appraisals, they are vaguely told they are “great” or “doing just fine.” They are thanked for their contributions.

Then a downturn occurs, and layoffs are necessary. The “nice” underperformers are almost always the first to go, and always the most surprised, because no one has ever told them the truth about their results, or lack thereof. The awful thing is that this often happens when the underperformers are in their late forties or fifties; they’ve been carried along for most of their careers. Then suddenly, at an age when starting over can be very tough, they are out of a job with no preparation or planning and a kick in the stomach they may never get over. They feel betrayed, and they should.

As harsh as it may seem at first, differentiation prevents that tragedy because it is based on performance measures that really count. That’s why I believe you are never “too nice” to implement 20-70-10, only too cowardly.

Try telling that to Joe Torre!

The New York Yankees function perfectly well as a team (much to the dismay of Red Sox fans like myself, I might add) with a highly transparent system of differentiation in place. Stars are lavishly rewarded; underperformers are shown the clubhouse exit. And if that’s not enough to make a system of differentiation perfectly clear, the players’ salaries are very public! You can have no doubt that differentiation is going on when some team members make $18 million a year, and others wearing the same uniform make the Major League minimum of $300,000.

And yet everyone pulls together for the
team
to win. Alex Rodriguez loves the thrill of hitting a grand slam home run, but I’m sure it feels a lot better to him when the Yankees win. In July 2004, Derek Jeter made the catch of the year, diving into the stands and coming up with a black eye and a cut face, a photo of which graced every newspaper in New York. A lot of the pain had to be relieved when the Yankees won, coming from behind in the thirteenth inning, in one of the great baseball games of all time.

Without question, these two stars love to excel for their own sakes. But you can bet it is always more fun and exciting when the team wins.
*

Their teamwork is a testament to two other things. First, great leadership. Joe Torre obviously understands the challenges of managing in a differentiation environment.

Second, the cohesiveness of the Yankees, and of so many other sports teams, shows the positive impact of an open, honest management system built on candid performance assessments and aligned rewards. In that way, differentiation doesn’t undermine teamwork, it enhances it.

In business, there probably would be pandemonium if companies started publishing everyone’s salary, and I’m not advocating that here. And yet, people always seem to know what their coworkers are making, don’t they? That’s why they get mad when everyone on a team gets rewarded the same way when only a few people have done the work. They feel cheated and wonder why management can’t see the obvious—that not every team member is created equal.

Differentiation rewards those members of the team who deserve it. By the way, that annoys only the underperformers. To everyone else, it seems fair. And a fair environment promotes teamwork. Better yet, it motivates people to give their all, and that’s what you want.

I have heard this critique of differentiation since its earliest days at GE, when one of our managers explained that 20-70-10 couldn’t be implemented in Japan because in that culture politeness was valued far more than candor. Since then, I have heard the national-culture excuse from people in hundreds of companies in dozens of nations. Recently, managers in Denmark told us that their country values egalitarianism too much for differentiation to be widely accepted. We’ve heard that case made in France too. A manager at a meeting in Amsterdam told us last year that there was too much “Calvinism in Dutch bones” for the system to work in the Netherlands. I guess the manager believed all rewards come only in Heaven, if you’re chosen to get there! And in China we heard that differentiation is a long time coming because in most state-owned enterprises—still more than 50 percent of the economy despite market reforms—many of the best jobs and rewards go to the most loyal members of the party whether they are the most talented or not.
*

Basically, I think the excuses we hear about differentiation’s cultural obstacles are just that—excuses. At GE, we couldn’t have a company where differentiation existed only in our U.S. operations. First of all, we just believed too much in differentiation’s effectiveness. But we also knew that having differentiation only in the United States would have been unfair and confusing, especially for the businesses with both U.S. and global divisions, and for the people who moved around the world for us. We decided early on that we would push through differentiation everywhere we did business, dealing with whatever cultural issues that confronted us.

Then an amazing thing happened. Very many cultural issues
didn’t
confront us. Once we made the case for differentiation and we linked it to a candid performance appraisal system, it worked as well in Japan as it did in Ohio. In fact, people who at first thought it could never work in their country came to support it strongly for its honesty, fairness, and clarity.

As I mentioned, very often when I get the comment “We can’t have differentiation in
my
country,” it comes from managers who admit they themselves support the approach. Their resistance grows out of the
assumption
that their people will object based on cultural values. My advice to them is to move slowly but go for it anyway. They will be surprised that they are not alone because differentiation, once in practice for a while, makes its own case in any language.

Again, an element of truth in this complaint. The middle 70 percent is the hardest category to manage in differentiation. The biggest problem comes with the individuals in the top tier of the 70 percent because they know they are not a whole lot different from the top-20 performers, and often a whole lot better than the bottom tier of their own “guard.” And yes, that can be enervating, and sometimes talented middle-70 people leave because of it.

The silver lining to this difficult situation is that the existence of a middle 70 forces companies to manage themselves better. It forces leaders to scrutinize people more closely than they would ordinarily and to provide more consistent, candid feedback. It pushes companies to build training centers that really make a difference. For instance, before differentiation, our Crotonville, New York, training center was often used in the 1970s as a warehouse where businesses could afford to send their underperformers. It was like a way station on the road to early retirement.
*

The rigor of 20-70-10 helped us change that. We turned Crotonville into a place where the top 20 and the best of the middle 70 talked about ideas, debated our approach to business, and got to know and understand one another a lot better. And since senior management spent several hours with each class, it also gave us a rough idea as to just how rigorously differentiation was being practiced in the field.

Another piece of silver lining is that while being in the middle 70 percent can be demotivating to some people, it actually revs the engines of many others. For the people in the top 20, for instance, the very existence of a middle 70 gives them yet another reason to pull out all the stops every day. They have to
keep getting better
to keep their high standing—what a rush that can be! After all, most people want to improve and grow every day.

For a lot of people in the middle 70, getting better is energizing too. Getting into the top 20 gives them a tangible goal, and having that goal makes them work harder, think more creatively, share more ideas, and, overall, fight the good fight every day. It makes work more of a challenge and a lot more fun.

I don’t know if it’s good or bad, but the world generally favors people who are energetic and extroverted. That’s also something you learn young, and it’s reinforced in school, at church, at camp, in clubs, and usually at home too. By the time you get to work, if you are still shy and introverted and somewhat low in energy, there are professions and jobs where those characteristics are advantageous. If you know yourself, you will find them. This criticism of differentiation, which I hear now and then, is not really about differentiation, but about society’s values.

I might add that in business, energetic and extroverted people generally do better, but
results
speak for themselves, loud and clear. Differentiation hears them.

If you want the best people on your team, you need to face up to differentiation. I don’t know of any people management system that does it better—with more transparency, fairness, and speed. It isn’t perfect. But differentiation, like candor, clarifies business and makes it run better in every way.

R
UDY GIULIANI HAS A SAYING
: “Know what you believe.” I think he’s right, so I want to conclude this section of the book with one of my core beliefs. I mention it because it is the hinge for every principle you’ve just read about—mission and values, candor, and differentiation.

The belief is this: every person in the world wants voice and dignity, and every person deserves them.

By “voice,” I mean people want the opportunity to speak their minds and have their ideas, opinions, and feelings heard, regardless of their nationality, gender, age, or culture.

By “dignity,” I mean people inherently and instinctively want to be respected for their work and effort and individuality.

If you’ve just read the above and said, “Well, obviously,” then fine. I am assuming that most people are having that response. And maybe the belief in voice and dignity doesn’t even need to be stated, it is so widely accepted and its importance is so self-evident. But I have been surprised over the past couple of years at how often I end up coming back to this value when I talk about winning.
*

Last year in China, a young woman in the audience stood and, literally in tears, asked how any businessperson in her country could practice candor and differentiation when “only the voice of the boss is allowed.”

“We, the people underneath, have so many ideas. But we cannot even imagine speaking them until we are the boss,” she said. “That is fine if you are an entrepreneur and start your own company. Then you are the boss. But some of us are not able to do that.”

I said that in the early days of GE’s operations in China, I had seen the difficulties she had just described at our factories in Nansha, Shanghai, and Beijing. But as the plants developed and business practices evolved, I had seen an enormous improvement in how the Chinese leaders who worked for GE were listening to employees. I told her that I was confident that, with China’s expanding market economy and the maturation of its management practices, a more inclusive approach would eventually spread.

But the repression of voice and dignity is hardly a Chinese problem. In fact, while the Chinese woman was very emotional in her questioning, people in every country I’ve visited share some of her frustration and concern on this matter.

Now, when you are running a unit or a division, you rarely think that people aren’t speaking up or that they’re not respected. It feels like the people around you certainly are, and your days are filled with visits, calls, and notes from people with strong opinions. But it ends up that what you experience is a skewed sample. The majority of people in most organizations don’t say anything because they feel they can’t—and because they haven’t been asked.
*

That became clear to me in the late 1980s, just about every time I had a marathon session at our training center in Crotonville. Detailed questions about local business issues—questions that should have been answered back on home turf—were thrown at me from every direction. “Why is the refrigeration plant getting all the new equipment while we’re letting laundry suffer?” and “What are we moving the GE90 engine assembly to Durham for, when we can do it right here in Evandale?”

In frustration, after several such questions, I’d invariably stop the class to ask, “Why aren’t you asking those questions to your own bosses?”

The answer would come back, “I can’t bring that up. I’d get killed.”

“Why can you ask
me
?” I’d say.

“Because we feel anonymous here.”

After a year or so of these kinds of exchanges, we realized we had to do something to create an environment back in the businesses where people at every level would speak out the way they did at Crotonville.

The Work-Out process was born. These were two- or three-day events held at GE sites around the world, patterned after New England town meetings. Groups of thirty to a hundred employees would come together with an outside facilitator to discuss better ways of doing things and how to eliminate some of the bureaucracy and roadblocks that were hindering them. The boss would be present at the beginning of each session, laying out the rationale for the Work-Out. He or she would also commit to two things: to give an on-the-spot yes or no to 75 percent of the recommendations that came out of the session, and to resolve the remaining 25 percent within thirty days. The boss would then disappear until the end of the session, so as not to stifle open discussion, returning only at the end to make good on his or her promise.
*

Tens of thousands of these sessions took place over several years, until they became a way of life in the company. They are no longer big events but part of how GE goes about solving problems.

Whether it was a refrigeration plant in Louisville, Kentucky, where employees debated faster and better paint systems, or a jet engine plant in Rutland, Vermont, where employees had recommendations on how to cut cycle time in blade manufacturing, or a credit card processing facility in Cincinnati, where employees had ideas about billing efficiency, Work-Outs led to an explosion in productivity.

They brought every brain into the game.

A middle-aged appliance worker who was at one Work-Out spoke for thousands of people when he told me, “For twenty-five years, you paid for my hands when you could have had my brain as well—for nothing.”

At last, because of Work-Out, we were getting both. In fact, I believe Work-Out was responsible for one of the most profound changes in GE during my time there. For the vast majority of employees, the boss-knows-all culture disappeared.

A big bureaucracy like GE needed something as systematized as Work-Out to break the ice and get people to open up. But it is not the only method to make sure that your team or company is getting every voice heard. Find an approach that feels right to you.

I’m not saying that everyone’s opinions should be put into practice or every single complaint needs to be satisfied. That’s what management judgment is all about. Obviously, some people have better ideas than others; some people are smarter or more experienced or more creative. But everyone should be heard and respected.

They want it and you need it.