Sunday, 7 September 2014

Myth of The Talent Mindset


The term “talent” is used to differentiate from the mediocrity of mere competency sets and recognises the varying diversity of people talent in the organisation. In a study published in 1998, McKinsey, a strategy consultancy company, published a study entitled ‘The War for Talent’.   This became quickly the choice management fad even today. From interviews with hundreds of managers, McKinsey consultants concluded that building a better talent pool is not about building a better Human Resource department. They claimed that it was not about better training either. Nor was it about offering more stock options.  They argued that it is crucial for leaders and managers at all levels to embrace a “talent mindset”. 

Leaders with a talent mindset make talent management a huge and crucial part of their job. They understand it can't be delegated, so they commit a major part of their time and energy to strengthen their talent pool and helping others in the company to do the same.  Finally, leaders with a talent mindset have the passion, courage, and determination to take the bold actions necessary to increase and strengthen their talent pools.

A “talent mindset” is the deep-seated belief that having better talent at all levels is how one can outperform the competitors.   It is the belief that better talent is a critical source of competitive advantage. It recognises that it is better talent that pulls all the other performance levers.   For McKinsey, a talent mindset is the catalyst that activates the other talent-building imperatives.

The belief in a "talent mindset" also explains the high premium placed on MBA degrees from top business schools, and why the many compensation packages for top executives have become so lavish and out of sync with their own company profits.   In the modern corporation, the system is considered only as strong as its “star” employees, the only talent that matters.

This talent-myth came crashing down in 2001 in a company where McKinsey had conducted twenty separate projects, billing nearly US$10m a year, and where a McKinsey director regularly attended board meetings, and whose CEO himself was a former McKinsey partner. The company was Enron.

The Enron scandal is now compulsory reading in all business schools.    Enron was the ultimate "talent" company, whose culture was crafted single-handedly by McKinsey.

“The only thing that differentiates Enron from our competitors is our people, our talent," Kenneth Lay, Enron's former chairman and CEO, once told the McKinsey consultants when they came to the company’s Houston headquarters.  Another senior Enron executive put it to Richard Foster, a McKinsey partner who celebrated Enron in his 2001 book, "Creative Destruction" that "we hire very smart people and we pay them more than they think they are worth".

Enron management did exactly what McKinsey consultants advised that companies ought to do in order to succeed in the modern economy.   It hired and rewarded the very best and the very brightest — and they drove Enron into bankruptcy.   The reasons for its collapse are complex and complicated.  

One fact remains however undisputed: Enron failed not because of the lack of talent, but in spite of its talent mindset and many talented employees.  

Indeed, what if smart people, measured by school grades and MBAs from top universities, are overrated?

The fundamental flaw in the “talent mindset” argument is the simplistic and naive notion that the overall performance of an organisation is just the sum of what its “best” individual “talents” can achieve.    Performance is not a stable fact but is impacted by human interaction, team/social dynamics, communications, incentives and leadership are far more important.   In many world-class companies, there is plenty of evidence that a great team can outperform a loosely connected group of more talented individuals.   Creating impactful performance is also made more difficult when senior executives fail to identify the best people for the best fit with the organisation..

The conventional wisdom is that an organisation's intelligence is simply a function of the intelligence of its employees.    It is easily understandable to want to believe in “stars” because our lives are so obviously enriched by the inventions and discoveries of brilliant individuals.    However, organisations operate and live by different sets of rules.   They do not just create; they plan, execute, compete and coordinate the efforts of many different people, and the organizations that are most successful at that task are the ones where the system of key processes is the star.

Like Enron not so long ago, many companies today have also fallen victim to the “talent mindset” myth.  They often hire talented people for the wrong reasons.   Even those that hire the right people often make little efforts to integrate and motivate them.   Many young, new talents often became disappointed, realized that their jobs do not always require their level of expertise, ended up not fitting in, and finally leave.

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