Faculty & Research
Forced Rankings of Employees Bad for Business
Forced-ranking systems that require managers to evaluate the performance
of an employee against other employees can hurt productivity, says a researcher
at the University of Michigan's Ross School of Business.
"The use of rankings to scale employee performance relative to that
of their peers, instead of using predetermined goals, may negatively affect
employees' willingness to maximize joint gains that will benefit the organization,"
Garcia, adjunct assistant professor of management and organizations
at the Ross School and assistant professor at the Ford School of Public
"Individuals will care less about performing better on a given task
and will, instead, shift their focus to performing relatively better on
a scale comparison—in other words, being surpassed in rank."
General Electric is the most famous proponent of the forced-ranking model,
but other companies have used it in some form at one time or another,
including Cisco Systems, EDS, Hewlett-Packard, Microsoft, Pepsi, Caterpillar,
Sun Microsystems, Goodyear, Ford and Capital One.
In a new study in the current issue of Organizational Behavior and Human
Decision Processes, Garcia and colleague Avishalom Tor of the University
of Haifa examine the forced-ranking system by conducting a series of studies
of task comparisons vs. scale comparisons.
the System to Reduce Production Disruptions
Julie Simmons Ivy
Reconfigurable manufacturing systems have given companies the ability
to respond more quickly to changing market and regulatory conditions.
However, firms still must perform preventive maintenance on their equipment
to replace or repair machinery that may fail due to aging or wear and
tear. Typically, these maintenance and reconfiguration problems have been
In a new University of Michigan study forthcoming in IIE Transactions,
a team of researchers at the Ross School of Business and College of Engineering
suggests that by incorporating reconfiguration operations into preventive
maintenance actions, manufacturers can actually improve system performance
by reducing total cost.
"Since both preventive maintenance and reconfiguration can be used
to protect the production operation against machine degradation and failures,
there is potential benefit in combining them for a less costly and more
reliable production system," said Julie
Simmons Ivy, assistant professor of operations and management science
at the Ross School of Business.
with Poor Accounting Quality Get Worse Lending Terms
Companies are well-advised to beef up their accounting practices before
they seek to raise new capital, says a professor at the University of
Michigan's Ross School of Business.
A new study by the Ross School's Sreedhar
Bharath shows that firms with poorer accounting quality are more likely
to choose private lenders (bank loans) than public lenders (bonds) because
the impact of accounting quality on interest rates in the public market
is 2.5 times greater than in the private market.
Poorer accounting-quality borrowers not only face significantly higher
interest costs, but lower maturities and a greater likelihood of posting
collateral when they obtain bank loans, Bharath says. The effects of poor
accounting quality also show up in bonds in the form of higher interest
"Accounting quality has a significant impact on the choice of bank
loans versus bonds," said Bharath, assistant professor of finance
at the Ross School. "It also affects debt-contract design in systematically
different ways. The quality of accounting information affects lenders'
estimates of future cash flows from which debt repayments will be serviced."
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