Differentiation

February 18th, 2008 Filed under English entries

This is some thoughts and digest after reading Jack Welch’s WINNING.

In the book WINNING, Jeck Welch defines differentiation as distinctions between top- and bottom-performing people and businesses and the different resource allocation to the distincted people and business. It’s a way of managing people and business. Differentiation is one of the chief jobs the managers are paid to do. A company has only limited money and managerial time, winning leaders invest where payback is high and cut loses everywhere else. People maynot like differentiation, but when they know it they manage with it.

Company has two parts, hardware and software. Defferentiation is needed on both of them.

If a company has several business or several lines. Differentiation requires managers to know which is strong and which is weak and invest money and people accordingly instead of sprinkling everywhere. (Here I’d like to add that you can identify strong or weak businesses by financial indicators or using the Boston Matrix)In the case of GE, its No.1 and No.2 framework stopped the decade-long practice of sprinkling money everywhere. Instead, they invest more where outcome maxmized. For the bad businessed, they cut investment or sell or close it at the worst scenario.

Then the people part. Differentiation requires managers to access employees and sort them by performance according to a 20-70-10 framework and then act on it. 20-70-10 means the top 20 percent, middle 70 and bottom 10. Sorting is relatively eazy, but “act” is hard to be made real.

For the top 20, they are the best and should be rewarded with bonus, stock options, praise, love, training and etc. It’s relatively eazy to do.

The mid 70 are managed differently. You are not keeping them out of the bottom 10. Instead, you give them hope. Managers identify people with potential to move up and caltivate them.

As for the tottom 10, they have to go. Sugercoating is not good for them in the long term. They have to understand the work doesn’t fit them and they should pursuit where they truely belong and where they can excel. However, this is the most difficult part about differentiation among people. It’s awful to fire people. But if you have a candid organization and clean appraisal system, then the bottom 10 know who are they and they uruarall leave before you ask.

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