Microsoft’s management kills innovation

Vanity Fair this month has a great article titled “Microsoft’s lost decade”. It describes how the corporate giant lost its way and changed from being an indomitable technology Titan to a has-been. Just as IBM did a decade earlier. The reason? A management technique known as “stack ranking”. Every business unit had to rank a certain percentage of its employees as “top performers”, “average” or “poor” and this effectively crippled the company’s ability to innovate. In contrast, Apple (for decades underdog to Microsoft) generates more revenue with a single product  – the iPhone – than the whole of Microsoft Corp.

“Every current and former Microsoft employee I interviewed—every one—cited stack ranking as the most destructive process inside of Microsoft, something that drove out untold numbers of employees,” Kurt Eichenwald writes in Vanity Fair. “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,” says a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

This internal competition vs external competition is a catataxic debate and it lies at the heart of the resurgent interest in group selection theories of evolution. The question is whether the natural selection that drives evolution acts at the level of the group or at a genetic level. If evolution is the “survival of the fittest”, then the question becomes the fittest what? Is it the fittest group? The fittest species ? The fittest individual? The fittest set of genes ? This question about “which level rules” is the essence of catataxis.

In social animals such as ants and termites you can clearly see a form of individual altruism: insects that sacrifice themselves for the good of the colony as a whole. This seems to imply that natural selection is operating at the level of the group. However, Richard Dawkins in his book “The Selfish Gene” pins natural selection definitively to the genetic level. He explains the “self sacrificing ants” in a bottom-up genetic way. The ants in the colony are all related to each other; they share the same genetic material. So in sacrificing yourself for the sake of the group you are still indirectly propagating your genes. This genetic cause of altruism is summed up in Hamilton’s Rule which states that the degree of altruism depends on the degree of genetic relatedness. It can be summed up in this grim biologists joke :

I will lay down my life for two brothers, four nephews or eight cousins

Other biologists such as David Sloane Wilson see a group selection argument for altrusim which goes like this: If you mix a group of selfish people and altruistic people together, then the selfish people will always win. They act in their own self interest and exploit the generous altruists. But if you move up a level and observe the competition between groups then you see a different effect. Groups that are full of altruists working cooperatively together outcompete groups full of selfish people fighting each other. So at a group level teams of altruists win, but at an individual level selfish people win. So, turning this around, you can say that wherever you see altrusitic behaviour then it is a sign that competition between groups is a stronger force than competition inside groups. Or, as Microsoft has found out, when management emphasises internal competition the group as a whole will fail.

This “level of selection” controversy is still a hot topic of debate amongst biologists. In this June’s issue of Prospect Magazine,  Richard Dawkins wrote an excoriating review of a book by fellow biologist Edward Wilson titled “The Social Conquest of Earth”. Wilson was arguing for the theory of group selection outlined above. Dawkins violently disagreed. His review concludes “…this is not a book to be tossed lightly aside. It should be thrown with great force…”. This vigorous denunciation provoked a huge backlash. The Dawkins article received more responses than any other in Prospect Magazine’s history. In effect, it was the atheist equivalent of watching the Pope beat up the Archbishop of Canterbury on the steps of St Paul’s Cathedral.

The debate also provides a controversial conclusion for management consultants. If you want your company (group) to win then you should embrace the cult of mediocrity. Suppress internal competition and focus on external competition.

In fox hunting circles, when the Master of the Hounds is training a new pack, he takes the dogs for their first outing in spring to see how they perform. He then shoots both the first few pack leaders and the last few stragglers, keeping the mediocre middle performers because he knows they will form the most effective team.

Could this translate across to corporate management. Is the secret to commercial success to sack not just your worst salesmen but also your best? Let me know what you think….

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