Differentiation Framework

DIFFERENTIATION FRAMEWORK

Jack Welch Management Institute

Professor Lily Garcia

520

10/16/2016

DIFFERENTIATION FRAMEWORK

Abstract

This paper discusses the forced ranking system of differentiation as popularized by Jack Welch during his time at GE.  It lays out the assumptions an organization has to make to embrace differentiation. It also discusses the values, cultural elements, and organizational processes that need to be in place for the process of differentiation to be effective. It goes on to assess the framework I would use to for my employees. It uses material from Welch Way, Differentiation described in Winning, (2005), along with class discussion, course material, and independent study referenced.

Keywords: Differentiation, Candor, Ranking, Performance evaluation.

DIFFERENTIATION FRAMEWORK

Introduction.

Differentiation is a “forced ranking system, devised by the U.S Army, just before entering World War II. It was designed to quickly identify a large number of officer candidates for the country’s imminent military expansion. As described by Welch in Winning, and practiced widely in GE during his tenure as CEO, it is a process that requires managers to assess their employees and separate them into three categories in terms of performance:

•    Top twenty percent or “A” players

•    Middle seventy percent or “B” players

•    Bottom ten percent or “C” players.

The managers are then required to act on this distinction. The top twenty percent of employees are rewarded. The middle seventy percent are trained provided positive feedback and given thoughtful goal setting. The bottom ten percent are let go.

Strength of differentiating employees

Once differentiation in place, the biggest advantage it has is people know where they stand, as Welch explains it, you can control your destiny. It helps people find early in their career if this is the right place for them. It rewards members of the team who deserve it. The process forces leaders to manage their workforce better, especially the middle seventy percent by providing them feedback, building training centers to help make a difference in their career.

DIFFERENTIATION FRAMEWORK

Pitfalls of differentiating employees

This process lends itself to the cognitive bias of “fundamental attribution error”, (Capelli), which leads us to assume that the lowest performers in any year will always be the worst performers and to fire them as a result. Differentiation process carried out as part of the annual performance evaluation process, holds people accountable for past behavior at the expense of improving current performance and grooming talent for the future. As jobs become more complex and rapidly change shape, it’s hard to set annual goals that would still be meaningful twelve months later. The process can be corrupted by employee politics, cronyism and favoritism. It does not value people who add intangible things to a business especially in the service industry, it does not value the “assist,” the person who sets up the goal.