Differentiation Framework

Joe Barfield

Jack Welch Management Institute

Dr. Deloris Willis

JWI520

July 17, 2016

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This course has introduced you to Jack Welchs 20-70-10 differentiation framework and to

Huselid, Beatty, and Beckers categorization of employees as A, B, or C players.

Write a 3-5 page paper in which you do the following:

1. Discuss the strengths and pitfalls of differentiating employees in the manner suggested by Jack

Welch (i.e. the 20-70-10 framework). What assumptions must one make in order to embrace

differentiation?

2. Determine which framework you would use to assess your own employees, why you would

use it, and how it would differentiate employees.

3. Discuss the values, cultural elements, and organizational processes that need to be in place for

differentiation of employees to be equitable and productive.

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Definition of Performance Differentiation

Performance differentiation is a technique used by some companies to evaluate employees by

segmenting them into tiers. Usually, there are three categories of performance: strong, average

and weak. Companies will often earmark each group by the size of the workforce. For example,

General Electric segmented employees' annual performance into three groups. GE's top 20

percent were rewarded, the middle 70 percent received coaching and training and the bottom 10

percent were fired.

Staff Turnover

Differentiation has a natural consequence of reconstituting a company's workforce. The

majority of the bottom-level performers are eventually forced to leave the company. Over time,

this has a large impact on the makeup of a workforce. In addition the type of replacement

employees a firm is able to attract will change. A company with a differentiation management

review practice will establish a reputation. This reputation will attract some workers and repulse

others. The percentage of the workforce that believes that its the right thing to do over time the

performance differentiation may increase.

Differentiation Benefits

In theory, performance differentiation should result in a company with a very high-quality

workforce. Personnel who align themselves with management's goals and perform well will be

highly compensated with promotions and bonuses, and higher salaries. Middle-tier workers

should have an incentive to improve and be given the tools to do so. Conversely, workers who do

not consistently perform well cant assimilated with prove the Darwin Theory holds true and

eventually depart the company. Hypothetically, a company workforce made up of mostly high

achievers should outperform competitors.

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Differentiation Controversy

Critics of differentiation point to flaws and inconsistencies in ranking employees. Favoritism

can have a big influence on the final rankings. Ranking employees may also not fit with the

culture of a business. For example, a healthcare organization may have the brightest doctors that

might have high-performance, and ranking them in some order may be both inaccurate and

morale-killing. Finding the right metrics to measure performance is also problematic. Often,

metrics tied to a profit or budget goals may not be something an individual has control over but

yet is measured by it.

Differentiation Framework

Throughout our lesson we have learned about people decisions and how many different

important factors play a part in becoming a successful manager. Understanding how to make

strategic decisions and how its importance to a company is crucial, in order for growth and

success to be produced. An important factor in a company success is having in the right people

in the right positions. Differentiation is a way to the business and its people. Differentiation can

be used as a management system to determine the right people and business strategies that will

transform a company to be exceptional. Although, differentiation is a unique approach, it will

separate the strong from the weak bottom performing people. Many companies fail because they

dont make it a priority to manage their people by a management system. Majority of the time

the organization depends upon the personal style of the leader in charge to manage their people;

they have no strategies in place to guide them. Companies should design a workforce in a

particular way that will add value and grow the company strategic objectives. Differentiation is a

management system that could help lead to the success of a company tremendously.
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According to Jack Welch, companies and organizations suffer when every business and

person is treated equally and bets are sprinkled all around like rain on the ocean. When a

differentiation management system is in place, a company can be ran more efficient and

effective. When it comes to strengths, differentiating employees can be viewed as way to make

everyone winners. It allows employees to know where they stand. Pitfalls and underlying

assumptions can consist of the many negative ways some view differentiation. Some feel

differentiation is unfair because the people that kiss up to their bosses will be the ones rewarded,

it puts people against one another and undermines teamwork, or all cultural values wont accept

the differentiation system. According Jack Welch he feels these are just all excuses to not use

differentiation. This differentiation system has been proven to work in many organizations.

Employees have a direct impact on company strategic capabilities; strategic positions are

characterized by variability in the performances of the employees holding those jobs. I have

worked in management many years in the technology industry and seen directly how this is a

very true statement. I have seen employees with positive strong work ethnics that have added

value to the service of the company. I have also seen employees that have negative work ethnics

and how that attitude alone affected the company. When a customer has an interaction with an

employee it is associated with the company. The employee is a representation of the company;

therefore it is extremely important to have strategies in place to differentiate employees. The bad

ones can be eliminated through this process. Employees need to know what is expected of them

in order to know what and how to implement strategic objectives. A differentiated workforce

requires that you first clearly understand the role of each job in executing your company strategy

and how employees need to perform within the role. When taking steps to decide on a

framework, I would identify the strategic positions first, which would consist of categories of the
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A, B and C positions. I would develop the criteria; next I would apply criteria to all positions. I

then would list all positions by categories A, B, C designation and assess all employees in

positions. Last, I would determine the percentage of A, B, C players in all positions. This will

reveal which jobs have the greatest strategic impact. I would evaluate the position based on

performance. I want to make sure all positions have well defined objective and expectations.

Once that is in place, I can focus on getting the right players in the right position. I would use the

framework of 20-70-10 which is categories based on performance. I would use this framework

because it is a simple format. It would differentiate employees by placing the top performing best

players in the 20 percent category. The next category is the middle 70 percent would consist of

the majority of the employees with potential to grow with proper training. The last category is

the bottom 10 percent and they are the one that refuse to meet expectations, perform low and

must be terminated.

There a many processes that needs to be in place for differentiation of employees to be

equitable and productive. According to Jack Welch, the first day must begin with honesty and a

candid appraisal system must be in place. People need to know what is expected of them and

clear expectations in order to be successful. Employees should not have to wonder where they

stand with a company. There must be a HR department that understands they are the driving

force behind making the best players. It is HR responsible to develop a team of winning leaders.

Also, managers on every level have to make hard choices and live by them. The HR person

should have multiple skills and be a people person. They should have a passion to see people

grow. Once the right people are on the team, strategies can be implemented effectively;

differentiation will allow you to see the right people.

Based on Principal not Favoritism

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What is it, then? Very simply, differentiation is based on the principle that the team with the

best players wins (Jack talks about building a winning team). If you don't agree with that, then

differentiation will never make sense to you. But if you do, then differentiation provides a

methodology for making that principle spring to life. You wonder how? The simple concept is

rewarding stars in an meaningful way that is both personally gratifying and monetarily full-

filling; by developing what Jack calls the "the middle 70" with training and coaching; and by

moving out bottom-tier performers so better talent can be brought in. Basically, differentiation is

a way to build meritocracies and continually raise the performance bar, increasing a company's

competitiveness with every upward notch. So why does it spark "all sorts of resistance? By far

the most common reason given is that differentiation is cruel.

Because of differentiation's performance appraisals, people know where they stand. Maybe

the news is not always good, but it does allow them to control their own career trajectories.

In comparisons to other companies who dont use the method where managers, in the name of

kindness, allow people, and particularly underperformers, to plod along for years. Then a

downturn occurs and middle of the road employees who are primary underperformers are always

the first to get the ax. One by one, their manager calls them in for a conversation that usually

goes like this:

"I am sorry Bill, Because of budget constraints and coupled with your last review which was

sub-par we have to cut staff and you are being let go."

"What! Why me?"

"Well...your performance review wasnt above standard."

"I've been here over 20 years. Why didn't you ever tell me?"
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Why not indeed? The employee, years earlier, might have been able to find a job with a future.

Now, at age 45 or 50, he must enter a job market more competitive than ever. That's cruel.

The "yank" myth of differentiation says the bottom 10% are summarily fired. In reality, that's

rare. More typically, when a person has been in the bottom 10% for a sustained period of time,

the manager starts a conversation about moving on. Occasionally, of course, an underperformer

doesn't want to go. But confronted with the cold reality of how the organization views them,

most people leave of their own accord and very often end up at companies where their skills are

a better fit and they are more appreciated. Differentiation spawns favoritism. The top 20%, it is

said, will always be the boss's insiders and pals. To which we say, that's possible. But favoritism

is a risk in any evaluation system. At least differentiation's performance reviews, which require

quantitative relative assessments of team members, are a countervailing force. A third common

criticism of differentiation is that the continual removal of the bottom 10% eventually forces

managers to push out perfectly good employees and thus pits people against one another. But if

that thinking is right, why do championship teams replace the bottom of their rosters every year?

Because the best organizations, in business as in sports, believe that performance can always

improve. The final reason people resist differentiation is that, even when they see its appeal,

they believe it won't work in their company's supposedly unique culture. And what culture is

that? Well, we've heard this objection from people at companies small and large, Japanese and

Swedish, growing and shrinking, and in every sector under the sun.

While differentiation isnt perfect every management practice has flaws. But this method has

vetted itself out to be the best way for companies to build great teams

Conclusion
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Overall, differentiation is identifying the top people, tell them where they are, and make it a

process to evaluate them regularly. Employees need to know where they stand in order to know

what areas they are doing well and what needs improvement. Differentiation will reward the

employees that work hard and deserve it. Employees should be motivated to give their all to the

job and look for growth opportunities. When a company can identify the advantages through a

differentiated workforce, they identify key essentials to delivering the quality results to create a

successful company.

References:

http://smallbusiness.chron.com/supervisors-impact-employee-engagement-14673.html

Welch, Chapter 3: Differentiation: Cruel and Darwinian? Try Fair and Effective

Week 2 Lecture One MANAGING YOUR TEAM AS A STRATEGIC ASSET

https://www.shrm.org/ResourcesAndTools/tools-and-samples/hr-

qa/Pages/whattodowhendevelopingperfratescales.aspx

http://www.halogensoftware.com/learn/how-to/the-benefits-and-challenges-of-profiling-

or-stack-ranking-employee-performance

http://www.referenceforbusiness.com/small/Sm-Z/Strategy.html