Differentiation: Cruel and Darwinian? Try fair and effective

I am a huge fan of differentiation, which is as sound a management system as can be. I have seen it transform companies from mediocre to outstanding.

Companies win when their managers make clear and meaningful distinctions between top-performing and under-performing businesses and people – when they cultivate the strong and cull the weak. Companies suffer when every business and person is treated equally and bets are sprinkled evenly.

When all is said and done, differentiation is just resource allocation. A company has only so much money and managerial time. Winning leaders invest where the payback is highest and cut their losses everywhere else.

If that sounds Darwinian, let me add that I am convinced that along with being the most efficient and most effective way to run your company, differentiation also happens to be the fairest and the kindest way. Ultimately, it makes everyone a winner.

Reasons to hate differentiation.. and not

Because managers must assess their employees, separate them into three categories in terms of performance – top 20 percent, middle 70 and bottom 10 – and act on those distinctions, differentiation receives a lot of criticism. Some of these criticisms have some truth in them, but more often than not, they don’t! Here’s what I mean:

+ Differentiation is unfair because it's always corrupted by company politics - 20-7-10 Just seperate the people who ingratiate themselves with their manager from those who don't.

It’s true that at some companies differentiation is corrupted by cronyism and favoritism. Luckily, "differentiation abuse" can generally be prevented. Differentiation should be implemented only after a candid, clear-cut performance system, defined goals and timelines, and a program of consistent appraisals has been put in place.

+ Differentiation is mean and bullying. Weak employees are made objects of ridicule.

When differentiation is working, people know where they stand. You know whether you have a strong shot at a big promotion or if it’s time to start looking for other opportunities. When you know where you stand, you can control your own destiny, and what’s more fair than that?

For those managers concerned about firing underperformers who are nice people, keep in mind that protecting underperformers is detrimental to both the company and the underperformers themselves. By not carrying their weight, the underperformers make the pie smaller for everyone, which can cause resentment. It’s also unfair, which undermines the atmosphere of trust and candor. The worst thing, though, is that protecting people who don’t perform hurts them in the long run since they remain blissfully unaware of the truth about their results.

+ Differentiation pits people against one another and undermines teamwork.

Differentiation rewards those team members who deserve it. By the way, that annoys only the underperformers. To everyone else, it seems fair. And a fair environment promotes teamwork. Better yet, it motivates people to give their all, and that’s what you want.

+ Differentiation is fine for the top 20 percent and the bottom 10 percent because they know where they are going. But it is enormously discouraging to the middle 70 percent, who end up in an awful kind of limbo.

First, differentiation forces companies to manage themselves better. Leaders tend to scrutinize people more closely than they ordinarily would so as to provide more consistent, candid feedback, and it pushes organizations to tackle the problem of how to provide training that will really make a difference.

And while being in the middle 70 percent may be discouraging for some, it actually revs the engines of many others. For the people in the top 20, for instance, the very existence of a middle 70 gives them yet another reason to pull out all the stops every day. After all, they have to keep improving to keep their high standing!

For a lot of people in the middle 70, improvement is energizing too. Reaching for the top 20 gives them a tangible goal, which in turn makes them work harder, think more creatively and overall, fight the good fight every day. It makes work more of a challenge and a lot more fun.

+ Differentiation favors people who are energetic and extroverted and undervalued poeple who are shy and introverted, even if they are talented.

The world generally favors people who are energetic and extroverted. That’s something you learn young, and by the time you get to work, if you are still shy and introverted, there are professions where those characteristics are advantageous. And with differentiation, you can be sure that your results will speak for themselves, loud and clear.

If you want the best people on your team, you need to start differentiating. I don’t know of any management system that does it better – with more transparency, fairness or speed. It isn’t perfect, but differentiation, like candor, clarifies business and makes it run better in every way.

Distributed by The New York Times Syndicate