Earlier this week, Huffington Post reported that Yahoo has instituted the “stack-ranking” system of evaluating employees. The approach involves ranking employees of a department or team against each other on a bell curve, with the result that someone – or several someones – end up on the bottom of the curve. Those employees are typically fired or penalized in some way.

As the article points out, the system of stack ranking, or as some companies call it, forced ranking (which is really more accurate), has been around since Jack Welch popularized it at GE. And it has been controversial ever since.

The issue is very simple: You get what you measure. And in the case of forced ranking, you get how you measure. If the metric is about comparing the performance of individuals against each other, you’re going to get competition, secrecy, silos, and likely an environment and culture that becomes increasingly tense and risk averse.

This is the polar opposite of what we’re seeing smart companies doing today. Companies are facing tough external challenges, among them:

  • Rising competition from agile, global, lower cost competitors
  • Increasing pressure on profit margins
  • An urgent need to keep up with (or lead) the innovation race
  • Changing business models and customer buying habits.

The best companies are responding to these challenges by tearing down walls to create community and enable collaboration, thereby driving:

  • Greater engagement,
  • Higher productivity,
  • Faster, better innovation,
  • Deeper customer insights and intimacy, and
  • Better financial results.

Companies that create this kind of community also give rise to employee ambassadors, people who are passionate about the companies they work for, which in turn helps recruit great people, build a strong culture and deliver competitive advantage.

Companies searching for ways to stand out and thrive in a challenging environment would do well to ask themselves: Create community and collaboration or promote competition? My vote is to collaborate internally so we can compete externally.