Don't Recruit Next Generation Talent, Grow It

Don't Recruit Next Generation Talent, Grow It
By: Dan Heath and Chip HeathMay 1, 2010

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Dan Heath and Chip Heath explain why you should grow your next generation of talent, not recruit it.


The business world is obsessed with "talent" -- hiring it, retaining it, rewarding it. We're urged to "get the right people on the bus." (And, really, what better symbol of the high-performing enterprise than a bus?) The metaphor implies that good workers are portable units of competence. They can bring their talent to your bus or your competitor's bus, but ultimately, it's their prize to bestow.

What if talent is more like an orchid, thriving in certain environments and dying in others? It's an interesting question, full of nature-versus-nurture overtones; we could debate it endlessly. But Boris Groysberg, a professor at Harvard Business School, has spoiled the debate with an unsporting move. He's gathered some data. And what he discovered forces us to rethink the argument.

In his new book, Chasing Stars: The Myth of Talent and the Portability of Performance, Groysberg studies a group of professionals renowned for the portability of their talent -- Wall Street research analysts. Analysts are a hybrid of researchers and pundits; they study public companies and write recommendations about whether to buy or sell their stocks.

To do that, analysts need good research and writing skills, and more important, they need great relationships with top executives (to get the straight dope) and with reporters (to spread their conclusions). This would seem to be the ideal free-agent job because when analysts switch firms, they retain their skills and their network. In fact, there's a common saying on Wall Street: "When an analyst moves from one firm to another, the only thing that changes is the letterhead."

Analysts were a great target for Groysberg because everyone believes their talent is portable, and, even better, it's easy to track their performance. The magazine Institutional Investor ranks analysts based on both the opinions of their peers and customer polls, and these rankings serve as a kind of universally accepted scoreboard.

You can see the science shaping up here: If talent is portable, then the analysts' rankings should persist after a transfer.

So what happened? Groysberg reports, "Star equity analysts who switched employers paid a high price for jumping ship. Overall, their job performance plunged sharply and continued to suffer for at least five years after moving to a new firm." Worse, switching firms doubled the chance that an analyst would fall off the rankings entirely (32% versus 16%).

So talent is not, in fact, perfectly portable, even in a job that is one of the most independent around (except for, perhaps, janitors and NFL placekickers).

What gives? Wall Streeters mistakenly see analysts as solo stars, but in reality, Groysberg found that even the best analysts depend heavily on an array of resources inside their firms. They rely on junior analysts who do their number crunching, other analysts who give them feedback, and salespeople who promote their ideas to clients. Not to mention the systems and culture within the firm.

There was one fascinating exception to these findings, a group of people who didn't suffer the lag in performance after transferring: women. Groysberg contends that the alpha-male culture on Wall Street, which never fully embraces women, forces them to compensate by beefing up their external networks, which are more portable. (Either that, or women are superior. Take your pick.)

So what do these findings mean for the world outside of Wall Street? Should we conclude that there's no such thing as different innate levels of talent? Of course not. The Baldwin brothers alone are enough to refute that. But the only way to take control of your firm's talent pool is to create it yourself. (And you should definitely get your child on the Wall Street-analyst career track. A job that entails writing persuasive essays on trucking firms must surely be the world's most preposterous route to a seven-figure salary.)

For instance, Hindustan Unilever, the Indian subsidiary of the consumer goods giant, has developed a reputation as a talent factory. How? Its senior managers are expected to spend 30% to 40% of their time grooming leaders. And executives usually change roles every two to three years so that they learn different aspects of the business. These investments may seem costly, but they have helped HUL become a $4.4 billion company, which reported 5.4% net profit growth at the end of 2009 -- and the envy of other companies worldwide.

When you own the talent factory, you've created a permanent competitive advantage. So if one of your stars leaves, you can simply wish him the best of luck on his new bus. And then grow another star to take his place.

Dan Heath and Chip Heath are the authors of the No. 1 New York Times best seller Switch: How to Change Things When Change Is Hard, as well as Made to Stick: Why Some Ideas Survive and Others Die.