John Francis “Jack” Welch Jr. served as CEO of General Electric Co. between 1981 and 2001. Under his leadership, the company founded in 1892 saw significant growth, under a strategy that saw the company cut all business units that weren’t seen to be market leaders.
His management style was equally brusque; he implemented a system that is now known as the “vitality model” assigning a workforce to three categories. Under this model, also called “stack ranking”, the top 20 per cent of employees are considered to be high-performers; the 70 per cent in the middle are considered to be adequate performers, who are vital to an organization’s ongoing operations. Finally, the bottom ten per cent are effectively considered to be dead weight; Welch, and later proponents of the vitality model recommend that the bottom ten percent of performers face termination. This model earned the blunt (albeit accurate) nickname “rank and yank”, due to the process of terminating the bottom ten per cent of the workforce. He truly demonstrated the need to make tough decisions in his mission to grow the company and reach new heights of excellence.
Jack Welch’s Success
A combination of solid leadership skills, strong business acumen and a bit of economic luck saw General Electric thrive under Jack Welch’s leadership. Within 5 years, General Electric’s stock had grown 237%; no small feat for a century-old conglomerate.
Jack Welch rewarded his top performers handsomely, often in the form of company stock. However, his adherence to the belief that the bottom 10 per cent of the workforce should be shown the door, and his willingness to close down entire business units earned him the nickname “Neutron Jack.”
Initially, this strategy worked at General Electric; as a long-established, stable company, by all accounts there were those within its ranks who had reached a point of complacency. Over time, however, there became less fat to trim; managers were forced to assign a bottom 10 per cent ranking to employees who were, by all other metrics, very good performers. By that time, internal business metrics and intelligence indicated the time for the vitality model had passed.
Jack Welch retired in 2001; since then, General Electric has moved away from the vitality model, instead moving toward a more hands-on model in which employees are provided with regular feedback.
Risks of the Vitality Model
Like there are specific types of leaders needed at different stages of life for a business, there are different decision models that are needed at each stage of life for a company. There are several notable risks and unintended consequences associated with the Vitality Model. First, it may discourage employees from pursuing or accepting promotions. If an employee knows he or she can perform at an excellent level in their current role, they may not want to accept a promotion due to the possibility of their performance seeming merely adequate in a higher level position.
The model may also cause workload and productivity problems; if 10 percent of employees are regularly terminated, managers are then placed under pressure to fill those newly-vacated roles quickly. This can result in the roles being filled by candidates who perform at an even lower level than the bottom-ranked candidates they’re replacing. It may lead to the erosion of working relationships as people are shown the door.
There is a lot we can learn from Jack Welch and his time at General Electric, for better and for worse. While his leadership style certainly helped lead the company to a period of significant growth, it also began to expose the potential consequences of this model of employee ranking when it comes to performance management decisions.
Here to Help
Would you like more information on employee evaluation and development? We can be reached for a free confidential consultation at +1-403-470-5350 or [email protected].
For further details on how Honiva helps businesses build great HR programs, please view our service offerings.
Other articles you may be interested in: