Blue Hill Research analyzes the implications of Microsoft's stack ranking policy. Is it possible that a vitality curve based HR policy is enough to undermine the success of a technology titan?

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Microsoft and Stack
Ranking
James Haight, Research Analyst, Blue Hill Research
Hyoun Park, Chief Research Officer, Blue Hill Research
1

2. ©2013 Blue Hill Research. All Rights Reserved.
Microsoft’s Stack Ranking
• Derived from “vitality
curve”popularized by former
GE CEO Jack Welch
• Employees are internally
ranked and broken into three
buckets: the top 20%, the
middle 70% and the bottom
10%.
Top 20%
Middle 70%
Bottom 10%

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The Bottom 10%
• At the end of the year,
employees in bottom 10%
are encouraged to improve
or leave.
• The theory is that this
promotes a culture of high-
performers and sheds those
weighing the firm down.
A Players - Executives
B Players - Individual
Contributors
Bottom 10% - Dead Weight

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The Big Question
“How is it that a company made up of
some of the brightest minds in the
industry can deliver us products like
the Dare, the Zune and the Surface
RT?”
Is stack ranking or the vitality curve the
reason? Does the vitality curve not work
in tech firms?

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Stack Ranking hasn’t always hurt Microsoft
From 1997 to 2003, Microsoft outperformed all
other companies in this group and outgrew the
S&P 500 by almost 10-fold.

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So, What Changed?
• When Microsoft dove in to the consumer space, it lacked the
creativity and imagination demanded by the consumer market
outside of the Xbox.
• Stack ranking creates internal competition where
collaboration is harmful if it helps your peers surpass you.
“Microsoft has staked its future on gaining
consumer consciousness and mindshare”

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Other Challenges with Stack Ranking
• The bottom 10% is difficult to calculate in early-stage
products
• In Microsoft any given group of individuals may be entirely
composed of A players or potential A players
• Where differentiated success can be difficult to measure, but
10% must be cut, the Vitality Curve does more harm than good.

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Microsoft Stack Ranking has outlived its usefulness
• Stack Ranking is most useful to promote a specific skill set
or results valued by the company
• The past decade has proven that this focused model is no
longer the key for Microsoft's future.
• Given the varied areas where Microsoft now competes, it is
easy to see how Microsoft has voluntarily molded a workforce
that is mismatched to handle its current challenges.

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Conclusion
“Microsoft must abandon the stack
ranking practice or risk a continued
misalignment of employee skills and
company ambitions.”
“Although Microsoft is composed of A
level talent based on historical stack
ranking, the Microsoft of today will not
be successful if run by the A players of a
decade ago.”

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stack ranking