One of Microsoft's (NASDAQ:MSFT) most controversial corporate practices has always been its stack-ranking performance review system, where a predetermined portion of employees would be classified into different categories relative to peers. That meant some were destined to be considered underperformers, even if they were still doing fine in absolute terms.

Many former employees, including some high-level execs, have called the system incredibly destructive, since it fosters too much internal competition. Instead, employees should be encouraged to collaborate in order to promote innovation, which is an area where Microsoft has lagged in recent years.

Incidentally, Apple (NASDAQ:AAPL) made its own move toward greater collaboration last year, after Tim Cook shook up the management team. Apple had historically been very departmentalized, and Cook felt that may be holding back Apple's ability to integrate hardware, software, and services. The highest-profile casualty there was Scott Forstall, who stepped down as iOS chief. Meanwhile, Yahoo! has reportedly adopted the controversial system.

Ford's Alan Mulally has been named as a front-runner for Microsoft's next CEO. As Mulally isn't a tech visionary, this underscores the importance of having employees collaborate and innovate, since Microsoft's next big idea may not come from the top.

In this segment of Tech Teardown, Erin Kennedy discusses the details of Microsoft's policy change with Evan Niu, CFA, our tech and telecom bureau chief.