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Should companies manage like Microsoft or Yahoo?

November 14, 2013: 2:22 PM ET

The software giant says it's getting more touchy-feely, while the web portal is amping up the competitive environment for employees. It's the latest chapter in an ongoing debate about the best way to run a business.

By Jennifer Reingold, senior editor

Under CEO Marissa Mayer, Yahoo has embraced

Under CEO Marissa Mayer, Yahoo has embraced "stacked rankings" for its employees.

FORTUNE -- Let the great management debate commence. Or should I say, continue.

By now, you've probably read that Microsoft (MSFT) and Yahoo (YHOO) -- two tech giants of the '90s now trying to regain their mojo -- are taking two very different approaches in how they determine winners and losers in the workplace.

After Marissa Mayer came in as Yahoo's CEO in July 2012, she instituted a "rank and yank" -- or "stacked ranking" -- system by which employees are graded on a curve, with those in the bottom category being asked to leave. Last week, Yahoo announced that it was laying off 600 workers based on the rankings.

A similarly Darwinian system had been in place at Microsoft for many years. But on Nov. 12, the company announced it would abandon it in favor of more frequent and informal types of reviews.

Which approach is better? That is a live-wire argument inside many a corporate headquarters these days. The first approach has been credited for success at the likes of General Electric (GE), back in the Jack Welch days, and consulting firms such as McKinsey. It has also been blamed for creating toxic cultures where employees sabotage each other rather than work together.

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But the discussion goes far beyond the realm of human resources. It's just the latest version of the struggle for supremacy between two business ideologies. Think of it as people vs. process. Supporters of both approaches have data to support their theories; neither has proven victorious yet.

In the "people" camp are companies like Google (GOOG), The Container Store (TCS), Zappos, and Intuit (INTU), and thinkers like Jim Collins and Peter Drucker. They believe that a company's ability to create profitable growth is first and foremost a function of its people. Happy people work harder, are more loyal, and are more innovative, which translates to greater success in the marketplaces and -- ultimately -- the bottom line. It's more about collaboration than competition and more open source than closed systems. "When you look at soft skills," says Mike Figliulo, managing director of consulting firm thoughtLEADERS, "you either understand or you don't. I mean, tell me the ROI of Winston Churchill."

The "process" group argues that analytics, ruthless competition, and efficiency is more critical to success than anything else. Wall Street, where you are paid well but easily terminated, is one example. Wal-Mart (WMT), Microsoft (until recently), and many companies owned by private equity firms are others. (As an example, see my recent story on how Heinz is getting squeezed by its PE owners.) Human capital is just one input to the system; it's the numbers, the intense competition, and the drive to cut costs at, well, any cost that leads to success. Just ask Larry Ellison of Oracle (ORCL), whose favorite quote comes from Genghis Khan: "It's not sufficient I succeed. Everyone else must fail."

It's fair to say that most companies sit somewhere on the spectrum between the two extremes, and that the best approach probably lies somewhere in the middle. But the experiments continue, in real time. Which philosophy do you prefer, and why?

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