The Cirlce of Safety and Profits

A case study to further illuminate the Circle of Safety.  I read an article by David Auerbach, a former Microsoft manager who discussed the pitfalls of the employee “stack” ranking system.  The stack predated Steve Balmer’s tenure as CEO but was continued as a core assessment process.  Mr. Auerbach recounted the fate of employees who were placed in a series of performance buckets on a scale of excellent to awful.  The rankings sealed the employee’s future career path at Microsoft and was the basis from which bonus schedules were calculated.  The manager’s job was to advocate for their best employees and allow the lower performers to drop as far as necessary in the rankings while maintaining negotiating power for employees they preferred.  This process was the antithesis of the Circle of Safety.  The stack does not promote human interactions and germinates distrust and secrecy.  The Circle of Safety does not avoid employee firings but it reflects on the impact to the community with a more thoughtful and humane approach to help those who may not be able to maximize their talents.

General Electric was the classic model of a company that would let go of the bottom 20% of its employees on an annual basis.  If you did not perform, you did not stay.  This created a very competitive environment but also one in which trust, innovation, and risk were not worth building.  Contrast this with Costco, a company that pays a living wage and invests in its people.  The Circle of Safety extends to the edges.  The investment community would suggest that GE practices the hard-hitting principles that make for strong quarterly results.  However, Costco has actually outperformed GE over long-run (see chart below), providing a blueprint that treating the employees as something other than a commodity is possible and prosperous.

Costco vs GE

A key attribute of an enterprise that embraces the Circle of Safety is that it does not make employment decisions based on a balance sheet.  Instead a Circle of Safety organizations think first about what is best for the community and then secures the resources to support the community.

* A continuation from the Day with Simon Sinek

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