Here is a brief excerpt from an article by Jack Welch for The Wall Street Journal in which he explains why using “differentiation” — rather than “rank-and-yank” — can align employee performance with an organization’s mission and values. To read the complete article, check out others, and obtain subscription information, please click here.

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Every now and again—like just this week, for instance, with the announcement that Microsoft will be changing its performance-appraisal system—some news event unleashes a fresh round of debate about the management practice dubbed “rank-and-yank.” That’s the term used to describe how companies supposedly identify their worst performers once a year and then, boom, fire them.

It makes me want to scream. And I know I’m not alone.

Because most experienced businesspeople know that “rank-and-yank” is a media-invented, politicized, sledgehammer of a pejorative that perpetuates a myth about a powerfully effective real practice called (more appropriately) differentiation.

Unlike “rank-and-yank”—I hate even using that term—differentiation isn’t about corporate plots, secrecy or purges. It’s about building great teams and great companies through consistency, transparency and candor. It’s about aligning performance with the organization’s mission and values. It’s about making sure that all employees know where they stand. Differentiation is nuanced, humane, and occasionally complex, and companies have used it successfully for decades. Maybe that’s not as headline-worthy as you-know-what, but reality rarely is.

Speaking of reality, here’s a quick description of how differentiation works, including a look at the most common criticisms of it.

Differentiation starts with communication—exhaustive communication—of a company’s mission (where it’s going) and its values (the behaviors that are going to get it there). I’m not talking about putting a plaque on the lobby wall with the usual generic gobbledygook. I’m talking about a company’s leaders being so specific, granular, and vivid about mission and values that employees could recite them in their sleep.

Why? Because the “guts” of the differentiation management system are performance appraisals that candidly evaluate employees at least once (and preferably twice) a year on how their results are advancing the company’s goals and how well they’re demonstrating its values. Two points here:

First, candor is absolutely essential to make differentiation work. Second, differentiation’s performance appraisals are not—I repeat, are not—just about “the numbers.” Yes, the system does assess quantitative results—say, an employee’s sales numbers or inventory turns. But it also looks just as carefully at behaviors, the qualitative factors. Does this person embrace the company value of sharing ideas? Does the employee relish-building leaders? What about going the extra mile to delight customers?

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To read the complete article, please click here.

Jack Welch was the CEO of General Electric for 21 years and is the founder of the Jack Welch Management Institute at Strayed University.