It's survival of the fittest

By JULIE MIDDLETON

Some call it "rank and yank". Some call it "quartiling" or "force ranking" or "performance distribution".

Whatever the label, it involves ranking staff into top, middle and bottom streams and giving the lowest a short time to improve, or move on.

True believers include the leaders of American giants Microsoft, Sun Microsystems, General Electric, Ford and, until its ungainly demise, energy trader Enron.

Now it's the turn of dairy giant Fonterra, the country's largest company with 20,000 staff worldwide, 9000 of them here.

Its head, Craig Norgate, has "unashamedly" made it clear that Fonterra will be profit-driven. The company will annually rank salaried staff all over the world and shed the bottom five per cent.

The process is labelled "people review and development" by Fonterra HR head Glen Petersen, who says it should pose no threat to "mature" executives.

"It engages the individual in their career, what they're going to do and how they're going to develop," he says. "The notion of reviewing your organisation's capability and range to upgrade it is not a new one."

He joined Fonterra in December last year from Telecom, where as head of HR he introduced similar systems, and did the same in the early 1990s as Lion Nathan's head of organisational development.

Fonterra staff will first complete a self-assessment, a common tool in performance management.

Meetings of the staffer's two superiors and their peers then rank staff according to their performance and potential. The Fonterra model, as the graphic indicates, is 20/60/20, measured against current performance and future potential.

As a gauge, both Sun Microsystems and GE put 20 per cent of staffers at the top, 70 per cent in the middle, and 10 per cent at the bottom.

The majority of staff, says Petersen, will be steady workers, who "are not punished while they keep doing what they're doing. Many have some ability to go up".

Those falling in the bottom five to 10 per cent will have serious discussions with their manager, and six months to reach agreed goals.

"As a rule of thumb, you don't see the same name two years in a row" at the 20/20 part of the pile, says Petersen.

GE's former tough-love boss, Jack Welch, has famously, and frequently, defined it like this: "As a manager, you've got to be nurturing flowers all the time. If the flowers don't grow, you've got to cut them out."

Ranking is seen by the Welches of the world as particularly useful in talent-conscious big companies in competitive arenas. In GE's case, it helped to turn the company from lumbering to lean and fleet-footed.

But Petersen admits that it's a process "that can be quite confronting and difficult. Some people will feel they're hard done by or poorly treated.

"People tend to grab on to the bottom five per cent. It's not just about getting the bottom five per cent and hitting them. It's about growth and replacement. It's about [the question] what are we doing to our flow of talent?"

In an ideal world, helping every staff member uses every ounce of talent they have, and Petersen says ranking assists.

Someone ranking high on potential and performance needs to be challenged and nurtured to prevent defection to competitors.

Managers need to find out how to help those ranking high on potential but low on performance. Has their worth been miscalculated? Have they got a poor boss? Fonterra's top 50 staff - all those reporting to the second tier under Norgate - were measured early this month.

The rest of the salaried staff worldwide will be folded into the system later this year.

Performance is about working to expectations, says Petersen. Predictors include 15 items such as the ability to deal with complexity and intellectual and strategic agility, as well as technical skills and "more traditionally understood leadership concepts" such as communication and ability to articulate a vision.

This requires in-depth information-gathering, says Petersen, whether technical or anecdotal.

"Without validated criteria, how are you promoting people? Is it on politics, on who you know, because someone's a good bloke?"

It took Fonterra's top bodies some 12 hours to cover 50 people, he says. Petersen claims petty politics or favouritism are curbed in an environment of "open and honest dialogue: we don't leave the meeting until we've got consensus.

"You can't take discussions lightly. You have to ensure they're rigorous," says Petersen.

"We need examples to back perceptions. Managers have to defend their call in the presence of their peers, senior HR and their boss."

And while the process "would never be completely free of bias, because it involves human beings, assessments about people have to be supported by data".

None of the first 50 ended up in the bottom box, or were scaled, says Petersen. "We would not do that. The notion of [scaling] someone from one box to another is self-defeating."

In a well-run company doing a good job of recruitment and always pushing for improvement, he says, the bell curve will form naturally.

He describes the "first round" as "calibration", as necessarily "artificial"; no one has received the hard word, he says.

This is partly because Fonterra is just seven months old and many staff are new, and partly because it makes sense to collapse major change into one process, such as the merger which created Fonterra.

But Petersen concedes that such a system will "absolutely" lead to "some problems". Time magazine reported last year that in the United States, Microsoft, Ford and Conoco were charged by former staffers with using the system to favour groups of workers over others, such as white males over black men or women, and younger managers over older ones.

But Petersen says legal challenges generally arise from poor decisions by bosses - something he says would be lessened by the depth of data and discussion required.

And he doesn't believe that ranking would create a climate of distrust or non-cooperation between staff.

Some of the values that will be added to the performance yardstick "are around team work and collaboration. We're developing an organisational culture and values here around competing hard, but winning together".

The fuel for Petersen's fervour is PepsiCo, whose former boss, Andy Pearson, sees the matrix approach as company muscle-building. Petersen came to agree during 14 years working for subsidiary Pizza Hut.

"An organisation is made up of varying grades of performance and potential," he says. "You can't get away from the bell curve."