Case Study: To Adapt, ITT Lets Go of Unpopular Ratings

By Jena McGregor

Why was turnover so high? That's what ITT China President William E. Taylor wanted to know when he visited the Shanghai sales office three years ago. The local manager had a simple answer for Taylor, then head of ITT's industrial products division. If the sales boss gave workers an average "3" on the 1-5 performance scale, they'd stop talking to him and in some cases, quit shortly after. "They're losing face in the organization," the manager lamented. "It would be great if we could do something about the scores."

It was comments like that, popping up around the globe, that helped ITT ultimately make the radical decision to ditch performance ratings altogether. In southern Europe, the focus on individual performance didn't sit well with the region's more "collective ethos," says James Durcan, director of ITT's talent development. And in Scandinavia, where there's more of "a sense of equality between bosses and workers," says Durcan, some workers asked, "What gives you the right to rate me a 3?"

The decision to drop the ratings was made by a global team of human resources managers three years ago when they met to consolidate the manufacturer and defense contractor's performance systems. Although ITT was by then a vestige of its once-sprawling conglomerate self, it still had up to 15 different evaluation programs globally. While the move was highly unusual—some 90% of companies rate or label worker performance, according to human resources consultancy Hewitt Associates (HEW)—it's a sign of how creative companies are becoming to manage a global workforce. Multinationals that expect their rank-and-yank reviews to play as well in Beijing as they do in Boston may learn from ITT's move. "[ITT] picked up on the cultural sensitivities and were willing to reduce their Western assumptions," says Roselinde Torres, a Boston Consulting Group partner who has worked with ITT, though not on its performance systems.

Most employees have cheered the changes, which still require a detailed evaluation. And in one of ITT's plants in Shenyang, China, the new system has helped to halve the plant's attrition rate. The only place that hasn't fully cottoned to the changes is the U.S., where a few metrics-loving engineers in the defense business remain attached to the old rankings. Still, most have come around, says Durcan. "It's not just about Asia or Europe," he says. No matter what culture you're from, everyone "likes the fact that they're treated like an adult in this discussion."

Back to Davos Special Report