Junk the Bell curve – but in the right places and for the right reason

Maybe there were loud cheers in the Infosys flock with the announcement that the company is doing away with the bell curve based performance assessment. And if Economic Times which ran this story is to be believed, the “decision is already showing results” with a substantial reduction in attrition. Looks like one of those Efficient Market Hypothesis scenario, where the employee attrition rate at Infosys has already factored in this “junk the bell curve” decision of the management to be implemented from this quarter. Or maybe it’s a post hoc fallacy, but that is not the issue for discussion here.

I am all for the end of Bell Curve way of thinking, but only for its universal applicability to domains where it is simply not valid leading to errors in judgment.

The normal distribution, popularly known as the bell curve, has a strong hold on our way of thinking. We almost believe it to be a law of nature (It is not). But fundamentally, it is a distribution of errors. You can see how the bell curve equation can be derived in this 5 minute YouTube video.

Frankly, Bell curve leads to a fairly benign performance appraisal system.A Bell curve is symmetric, it’s mean and median are the same - the average is truly sitting at the centre, with 50% of the values above and below it.

Where else in the world of human interactions to do you see such an egalitarian (Yes – egalitarian) distribution?

Whenever people interact, minor advantages conferred by our fickle preferences or chance snowballs to huge differences over time. This is the classic Matthew effect

Daniel Kahneman succinctly put this as his “favourite equation” –

success = talent + luck

great success = a little more talent + a lot of luck

Any appraisal system that replaces a bell curve based system, and which also wants to rank the employees for rewarding/penalising the top/bottom performers is likely to be far more discriminatory than the poor, much maligned and misapplied Bell. Employee performance, if measured by pure output, is going to show a Power Law distribution. Thomas Piketty, in his book Capital in the 21^st Century, has shown the prevalence of such skewed distribution in income and wealth of individuals.

Are organisations and performance appraisal systems willing to accept the role of luck in success, and the perception of success which leads to further opportunities for the winner in turn leading to the creation of superstars?

The graphic below shows the relative share of various segments of population for Income and Wealth in USA (for 2010, based on data from Piketty’s book), and the share under normal distribution (say of Income, with mean of USD 45,000 and standard deviation of USD 15,000).

The bell curve leads to a far lower level of inequality. 

Now if the idea behind junking the bell curve is to do away with the forced identification of the “non-performers” – then I am all for it. 

I would live in a bell curve world any day - and wish the same for the world – but fear that the Power Law is here to stay.