Jack Welch was the CEO and President of GE for many years. During his tenure, he transformed GE from a marginally profitable company, to one that enjoyed either a number one or number two position in each of its market segments. Welch was able to do this by using differentiation in both the way that each strategic business unit was operated, and also in the way that he used differentiation to manage GE’s employees.
After Welch retired, he wrote many books that outlined his business and management philosophies, and how he had ruled the GE Empire successfully, and productively by implementing these processes. Based loosely on the statistical model of “Normal Distribution” (Russell, 2014), Welch describes that each company has a distribution of employees that are “A” and that these top performer employees are twenty percent of the companies workers. The middle bunch of performers or “B” employees are the majority of the workers and make up seventy percent of the employee population. The remaining ten percent are the “C” employees and they are the poorest performers in the company. This corresponds very closely to what statistics outlines in the “bell shaped distribution” ("The null hypothesis," 2011).
Welch’s framework is justifiable through statistics. In any population, there is likely to be a distribution of behavior as outlined in the bell shaped distribution. Welch’s framework is interesting because it uses this known fact as a foundation for how to manage human resources to ensure peak performance, or gather data to do something about the performance. By categorizing employees as A, B, or C, Welch managed GE by rewarding the A performers, working closely with a subset of the B performers to groom them for A positions, or at a minimum, motivate them for their peak performance. The C population was the group of underperformers that needed to be dealt with appropriately. “Appropriately” is a judgment call that is quite situational.
Welch describes the criticism that he has heard over the years about his differentiation model for managing human capital. There has been criticism that cultural influences may impede the implementation of this strategy, yet, at GE, they managed to successfully implement this model in Japan, Denmark, France, and Italy and in all other places where GE operates. The differentiation model needed to be implemented uniformly across all of the nations where GE operated, or where employees were transferred. Hence, cultural impediments do not need to be a reason to resist the implementation of the differentiation model. This proves that consistency of implementation, across the whole company is a critical component to the implementation of the differentiation framework.
The baseball analogy from his childhood and from the New York Yankees further proves that some players are the best, others will keep trying to be the best, and some will be sidelined. This also fits perfectly with how the differentiation framework is modeled.
The differentiation model that Welch implemented was based on candor and fairness. In its simplicity, the framework was designed to weight the performance of an employee based on their ability to meet or exceed their goals, versus how well they played the politics or jockeyed for position. The differentiation framework is also likened to a school’s “grading” system and how students’ performance is evaluated.
Placing “A” performers in key strategic roles, with “B” performers as their supporters is only as good as how well a company can define these key strategic role. Any bias in the definition of these strategic roles can skew which employee gets a particular role. Hence, the major challenge in placing “A” performers in key strategic roles comes down to really knowing why a job is deemed strategic in nature. A fallacy is that a manager is always in a key strategic role, but this is often not the case. This manager could be managing an area of the company that is not strategic. If so, then is his or her job really strategic?
A successful organization is only as successful as the people that work in it. That is why hiring the right people is always the most important, most significant accomplishment for a manager and his/her human resource partners. It is also important that strategic roles (which are typically harder to fill) be staffed first, versus the positions that may not be as strategic in nature, but are much easier to staff. Placing the right people in the right positions is a means to ensure that the employee will have a good chance at being successful. More importantly, this match ensures that the employees’ contribution will be significant and productive. Ideally, an “A” performer will be hired for a strategic role, as this will streamline the process going forward. Performance appraisals are used to monitor an employee’s performance against the job’s goals and objectives. The performance appraisal process ensures the employee is performing accordingly. A good performance appraisal is one that is carefully guided by periodic feedback – not just a formal once a year discussion. A good performance appraisal model is a feedback loop that is ongoing ("Performance management for," 2014).
Russell, D. (2014). Bell curve, normal distribution defined. Retrieved from http://math.about.com/od/glossaryofterms/g/Bell-Curve-Normal-Distribution- Defined.htm
The null hypothesis. (2011, May 10). Retrieved from http://disjointedthinking.jeffhughes.ca/2011/05/the-null-hypothesis/
Performance management for supervisors. (2014). Retrieved from http://www.strategic- change.com/performance/