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The War for Talent
Article in McKinsey Quarterly · January 1998
5 authors, including:
National Defense University
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44 THE McKINSEY QUARTERLY 1998 NUMBER 3
Elizabeth G. Chambers, Mark Foulon,
Helen Handfield-Jones, Steven M. Hankin,
and Edward G. Michaels III
THE McKINSEY QUARTERLY 1998 NUMBER 3 45
Libby Chambers is a principal in McKinsey’s
New York o˜fice, Mark Foulon is a former
consultant in the Washington, DC o˜fice,
Helen Handfield-Jones is a consultant in the
Toronto o˜fice, Steve Hankin is a principal in
the Charlotte, North Carolina o˜fice, and Ed
Michaels is a director in the Atlanta o˜fice.
Copyright ‘ 1998 McKinsey & Company.
All rights reserved.
In addition to the five authors, a team consisting of Stephanie Durr, Larry Kanarek,
Nikitas Koutoupes, Bill Kunze, Mathias
Lingnau, and Drew Scielzo worked extensively
on this research. Jude Rich of Sibson &
Company, a human resource and compensation
consulting firm, also made a considerable
Tell me again: Why would someone really good want to join
And how will you keep them for more than a few years?
Yes, money does matter
BsoETTER irtu gaaniz tioTanALE ts o ionNT f hi , thIS ge a h u WbOR nilciTH ty t ertai FIGHTI o ad nty, a apt, t nNd t Go ma FOR o st.ekAee de r t t shr ecni is ouioogr l nh w s q evreuic els o nkchi lf a y i nnng
change is critical. But at a time when the need for superior talent is
increasing, big US companies are finding it di˜ficult to attract and retain
good people. Executives and experts point to a severe and worsening
shortage of the people needed to run divisions and manage critical functions, let alone lead companies. Everyone knows organizations where
key jobs go begging, business objectives languish, and compensation
In an e˜fort to understand the magnitude of this war for talent, we researched
77 large US companies in a variety of industries (see text panel). We worked
with their human resources departments to understand their talent-building
philosophies, practices, and challenges. And to gain a line manager perspective,
we surveyed nearly 400 corporate o˜ficers and 6,000 executives from the “top
200” ranks in these companies. Finally, because numbers never tell the whole
story, we conducted case studies of 20 companies widely regarded as being
rich in talent.* What we found should be a call to arms for corporate America.
Companies are about to be engaged in a war for senior executive talent that will
remain a defining characteristic of their competitive landscape for decades to
come. Yet most are ill prepared, and even the best are vulnerable.
You can win the war for talent, but first you must elevate talent management
to a burning corporate priority. Then, to attract and retain the people you
need, you must create and perpetually refine an employee value proposition:
senior management’s answer to why a smart, energetic, ambitious individual
would want to come and work with you rather than with the team next door.
That done, you must turn your attention to how you are going to recruit great
talent, and finally develop, develop, develop!
THE WAR FOR TALENT
46 THE McKINSEY QUARTERLY 1998 NUMBER 3
To investigate the talent pr by large organizations, we studied 77 oblems faced
companies from a variety of industries. The
companies chosen were in either the top or
the middle quintile within their industries in
terms of 10-year total return to shareholders.
We grouped the companies into sectors
so as to compare high performers with
We also asked the companies to provide
disguised performance data on their executive
pools, grouping senior managers into 20
percent high performers, 60 percent average
performers, and 20 percent low performers.
This allowed us to compare the responses
to survey questions of groupings of high-,
average-, and low-performing executives.
We questioned corporate officers (CEOs
and their direct reports; 359 respondents)
about the strength of their company’s
talent pool and how it might be improved.
We talked to the top 200 executives in
each company directly to understand why
they work where they do and how they
became the professionals they are (5,679
respondents). We asked senior HR executives
(72 respondents) about the way their
company manages its top executive group;
for some companies that meant 50 people,
for others 400. The quotations in the article
are taken from these interviews.
In addition, we interviewed a dozen leading
academics in the field of organization and
mined the research base. As a reality check,
we relied on a steering committee comprising
HR leaders, executive search, compensation,
and assessment experts, and McKinsey
partners with experience in organizational
ABOUT THE RESEARCH
› They were: AlliedSignal, Amgen, Arrow Electronics, Baan, Enron, First USA (Banc One),
General Electric, Harley-Davidson, Hewlett-Packard, The Home Depot, Intel, Johnson &
Johnson, Medtronic, Merck, Monsanto, Nabisco, NationsBank, Sears, SunTrust, and Wells Fargo.
Our survey reveals that some companies do all of these things, but many
more fall short of the mark.
There is a war for talent, and it will intensify
Many American companies are already su˜fering a shortage of executive
talent. Three-quarters of corporate o˜ficers surveyed said their companies
had “insu˜ficient talent sometimes” or were “chronically talent-short across
the board.” Not surprisingly, search firm revenues have grown twice as fast as
GDP over the past five years.
Part of the cause may be cyclical, the
product of a strong economy at the
peak of its cycle. But what should
keep CEOs awake at night is a
number of trends that threaten a
wide-ranging shortage in talent over
the next five years.
Until now, the executive population
has grown roughly in line with GDP.
This means that an economic growth
rate of 2 percent for 15 years would
increase demand for executives by
about a third. But supply is moving in the opposite direction: the number of
35- to 44-year-olds in the United States will decline by 15 percent between
2000 and 2015 (Exhibit 1). Moreover, no significant countervailing trends are
apparent. Women are no longer surging into the workforce, white-collar
productivity improvements have flattened, immigration levels are stable, and
executives are not prolonging their careers.
This would be challenge enough, but the numbers tell only half the story.
Large companies also face three qualitative challenges. First, a more complex
economy demands more sophisticated talent with global acumen, multicultural fluency, technological literacy, entrepreneurial skills, and the ability
to manage increasingly delayered, disaggregated organizations.
Second, the emergence of e˜ficient capital markets in the United States has
enabled the rise of many small and medium-sized companies that are
increasingly targeting the same people sought by large companies. Small
companies exert a powerful pull across the whole executive spectrum, o˜fering
opportunities for impact and wealth that few large firms can match. As Julian
Kaufmann, director of organization development and information systems,
human resources at AlliedSignal, explained, “We are competing with startups,
not General Electric. We are not getting access to a whole ra˜t of talent.”
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 47
Declining supply of future executives
Number of 35- to 44-year-olds in the United States;
index: 1970 = 100
Source: United Nations
1970 1980 1990 2000 2010 2020
over 15 years
Peak in 2000 (190)
Third, and not surprisingly given the above, job mobility is increasing. Ten
years ago, a high performer might have changed employers just once or twice
in a full career. According to 50 senior executive search professionals we
surveyed, the average executive today will work in five companies; in another
10 years, it might be seven. A war once conducted as a sequence of setpiece
recruiting battles is transforming itself into an endless series of skirmishes
as companies find their best people, and in particular their future senior
executives, under constant attack.
All are vulnerable
Our research suggests that executive talent has been the most undermanaged
corporate asset for the past two decades. Companies that manage their
physical and financial assets with rigor and sophistication have not made
their people a priority in the same way. Only 23 percent of some 6,000 executives surveyed strongly agree that their companies attract highly talented
people, and just 10 percent that they retain almost all their high performers.
Perhaps more alarmingly, only 16 percent think their companies even know
who their high performers are. And only 3 percent say their companies
develop people e˜fectively and move low performers out quickly.
Companies skilled at attracting, developing, and retaining talented senior
executives do exist, however. Of 20 cases that we studied, seven appear to have
thrived largely because of a strong performance ethic. Nine had combined
strong corporate aspirations with rapid growth, as well as wealth accumulation
and attractive jobs for employees (what we describe later as an attractive
employee value proposition). But many of these companies had not managed
talent particularly consciously until they began to see problems emerging on
that front. Even now, they face important talent-building challenges.
Make talent management a burning priority
Superior talent will be tomorrow’s prime source of competitive advantage.
Any company seeking to exploit it must instill a talent mindset throughout the
organization, starting at the top.
Leaders with a talent mindset share AlliedSignal CEO Larry Bossidy’s
conviction that “At the end of the day, we bet on people, not strategies.”
They understand why, when Jack Welch met with The Home Depot to share
what is distinctive about GE’s approach to managing growth, he took two
human resources executives with him. They believe building their bench is
a crucial part of their job. “If it’s the most important thing,” says Dick
Vague, CEO of First USA, “your calendar reflects it. I have been personally
involved in hiring everyone in the top management group, and many three
or four levels below that.”
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48 THE McKINSEY QUARTERLY 1998 NUMBER 3
Leaders put in place a gold standard for talent, and act on it. The leadership
group, whether CEO, COO, or executive committee, should be directly
responsible for applying the standard to the top 200 to 500 executives. At
medical devices company Medtronic, “Over the past seven years, CEO Bill
George has upgraded the talent pool of our top 300. At present, 25 percent
come from the outside. Some people le˜t because they could not meet the
new bar.” Similarly, when SunTrust’s banking units needed more people to
expand the business in large markets, “We assessed our top 120 line of
business managers [and found] about 15 percent were underleveraged and
about a third were over their heads. We’ve moved on more than half of those
over their heads.”
Once united by a talent mindset, the leadership group must foster the right
talent-building behavior by holding regular discussions to review the
performance of executives at every level. The backbone of a company’s talent
e˜fort, these reviews must be candid, probing, and action-oriented, and link
talent to strategy. They must set high standards, ensure that performance is
assessed fairly, and act as a vehicle for fostering personal development.
Ultimately, they should improve the quality of decisions about sta˜fing.
Human resources executives at half our top-quintile companies strongly agree
that “Discussions in our meetings are frank and open, and everyone contributes actively.” For mid-quintile companies, the figure is just 17 percent.
At The Home Depot, the ethos is “To say what you think in the room, not
a˜ter the meeting.”
Companies must insist that their line managers are accountable for talent.
At Monsanto, half a senior executive’s bonus is based on his or her people
management skills. At First USA, the ability to recruit talented new people is
understood to be a criterion for promotion. Although 78 percent of corporate
o˜ficers questioned in our survey agree that companies should hold their line
managers accountable for the quality of their people, only 7 percent believe
that their companies actually do so. It seems that many line managers are
not accountable for the quality of their sta˜f. This was perhaps our most
shocking finding. Clearly, things must change.
To support the talent-building challenge, the role of human resources
should be redefined and its capabilities strengthened. More than process
managers, HR executives need to be e˜fective, proactive counselors with
personal and business credibility and strong relationships with business
units. The need for such a dynamic profile is fast becoming conventional
wisdom (78 percent of corporate o˜ficers agree HR should be a partner in
e˜forts to build a stronger talent pool), but it is more honored in the breach
than the observance (only 27 percent of corporate o˜ficers strongly agree
that HR plays this role at present).
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 49
When all these things are in place, managers can take risks and deploy
innovative solutions in the quest for talent. They can hire 650 military o˜ficers
over two years, as General Electric did, or replace half their 400 manufacturing managers, like AlliedSignal.
Create a winning employee value proposition
Companies with superior employee value propositions have a compelling
answer to the question, “Why would a talented person want to work here?” A
store manager at The Home Depot told us, “This is my $50 million business;
I can double it or run it into the ground. Where else could I get that independence and challenge at 33?”
The top-quintile companies in our survey in terms of shareholder value
outperform mid-quintile companies in 13 out of 19 employee value proposition dimensions we measured (those listed in Exhibit 2), and perform
about the same in the other six. This stronger employee value proposition
translates into a stronger pull on talent: 83 percent of top-quintile HR
executives say their job o˜fers are rarely turned down compared with
60 percent for mid-quintile executives, and 88 percent of top-quintile
executives say they seldom lose top performers to other companies as
against 73 percent of mid-quintile executives.
Creating a winning employee value proposition means tailoring a company’s
“brand” and “products” — the jobs it has to o˜fer — to appeal to the specific
people it wants to find and keep. It also means paying what it takes to attract
and retain strong performers (the “price”).
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50 THE McKINSEY QUARTERLY 1998 NUMBER 3
What motivates talent?
Percentage of top 200 executives rating factor absolutely essential
|Values and culture
Company has exciting
Many talented people
Good at development
Fun with colleagues
Job security 8
Freedom and autonomy 56
Job has exciting challenges 51
Career advancement and 39
Fit with boss I admire 29
Compensation and lifestyle
Differentiated compensation 29
High total compensation 23
Geographic location 19
Respect for lifestyle 14
Acceptable pace and stress 1
A company’s “brand” is the face it presents to the world. At its heart must
be an appealing culture and inspiring values: qualities that apply to every
activity and function within the company, and to every aspect of its behavior.
If we carry our analogy with marketing a step further, the executive talent
pool can be segmented into four groups. All care deeply about culture, values,
and autonomy, but each di˜fers in what it looks for in a company:
“Go with a winner” executives seek growth and advancement in a highly
successful company; they are less concerned with its mission and location.
This cluster most closely mirrors the overall “top 200” population.
“Big risk, big reward” executives value compensation and career advancement over their company’s success or its active role in their personal
“Save the world” executives demand an inspiring mission and exciting
challenges, and care less about compensation and personal development.
“Lifestyle” executives are more interested in flexibility with respect to
lifestyle choices, geographic location, and compatibility with the boss than
in company growth and excitement.
We found that successful organizations tend to have a dominant talent
segment, while their weaker peers have a bit of everything. But no company
can be all things to all people. Ideally, a company should simply figure out
who it is aiming for, and make sure its brand is tailored to the talent segment
it seeks to attract.
No brand can be transformed overnight, however. It’s an enormous task, and
to be undertaken only in the most extreme situations, although the excitement
generated by a turnaround can itself be a powerful component of a new
employee value proposition. Arthur Martinez’s commitment to shaking up
Sears, for example, transformed perhaps the United States’ most traditional
retailer into “a compelling place for employees, customers, and investors.”
What a company can and should consider changing straight away are the
particular products it o˜fers: its jobs. If a company succeeds in attracting a
target executive group with great jobs, the brand should take care of itself
as the changing mix of employees reinforces the values the company is
seeking to build.
So what is a great job? We see some half-dozen attributes: “elbow room” to
allow executives room to maneuver; “head room” to allow them to make
decisions without seeking constant approval from above; a clear link between
daily activities and business results (even if not a P&L); a position that stretches
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 51
but does not defeat, while being something an executive can “get their arms
around”; something new to work on as o˜ten as possible; and great colleagues,
above, around, and below. If this seems too much to think about, companies
might adopt Dick Vague’s rule of thumb: “I aspire to create an enterprise where
everyone’s job consists of at least 80 percent of things they love doing.”
And naturally there is the question of money. As Jude Rich, chairman of
HR consulting firm Sibson puts it, “Highly competitive compensation —
particularlylong-termwealthaccumulation — isanessentialtickettothegame
talent and have opened the vault find the return on their investment is terrific.”
Many companies fear that deep di˜ferences in pay will create cultural
problems, but the issue is too important to ignore. Money alone can’t make a
great employee value proposition, but it can certainly break one. To get the
people they want, 39 percent of top-quintile companies pay whatever it takes,
compared with 26 percent of their mid-quintile counterparts. Once they are
on board, faster career progression is the most e˜fective way to put individual
high performers on a di˜ferent compensation trajectory without disrupting
overall pay structures.
Making sure top performers’ compensation is considerably higher than that
of their average colleagues is a relatively straightforward way to keep the exit
price high and raise barriers to poaching. When a senior manager at GE was
told a division was going to give its highest performers a 10 percent salary
increase and its average performers 5 percent, he said, “Ten percent? Not
nearly aggressive enough! Go for 15 percent, 20 percent, or 30 percent!”
The ability to define, develop, and deliver a superior employee value proposition will be especially critical for large companies facing the small-company
challenge. Small companies o˜fer employees a chance to satisfy their desire
for meaning, excitement, flexibility, impact, and reward. They may also o˜fer
equity ownership in a business small enough that a few talented executives
can drive the stock price.
Large companies need not be too defensive, however. They possess natural
advantages of their own: magnitude of impact (be a big fish in a big pool),
depth (the resources to take risks, particularly with people), capital (the
resources to support big decisions), and variety (a range of experiences over
the course of a career). They can also make themselves feel smaller in a
number of ways: by creating smaller, more autonomous units, improving
mentoring, di˜ferentiating pay, and so on.
Sourcing great talent
Instilling a new talent mindset and developing a powerful employee value
proposition will operate as a compelling advertisement for your company,
THE WAR FOR TALENT
52 THE McKINSEY QUARTERLY 1998 NUMBER 3
but they aren’t enough. A robust sourcing strategy is crucial. That means
being clear about the kinds of people that are good for your organization,
using a range of innovative channels to bring them in, and having a complete
organizational commitment to getting the best.
A few companies are good at specifying the qualities likely to translate into
success for them. Hewlett-Packard looks for smart engineers who are good
team players. The Home Depot wants customer-obsessed, entrepreneurial
leaders. Enron seeks independent deal makers with a financial bent. Dick
Vague of First USA asks, “Are they really smart? Can they get things done
under pressure and in unfamiliar circumstances? Are they nice? We can’t
tolerate high-performing inconsiderates. Are they straightforward and
trustworthy? I can’t stand obfuscation. They can’t be high maintenance. We
need to have fun here.”
But most companies don’t really know who they want. They must find out,
and quickly, or their recruiting programs will be flawed before they even
begin. We found that it is relatively straightforward for individual companies
to develop detailed profiles of the kind of people they are a˜ter by analyzing
the background and experience of their current high performers (Exhibit
3). Once you know what you are looking for, there are a number of routes
you can take. Some get what they need largely through acquisitions, which
is fine if acquisitions are an intrinsic part of corporate strategy. Some
“outsource” by snapping up people they believe are better trained elsewhere.
Those who can attract the best college graduates and excel at early development “insource” instead.
Some strategies will work better for some companies than others. Companies
that grow slowly, for example, have fewer opportunities to develop people
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 53
Performance profiles at two companies
|Percentage of high and
|Major retailer||Super-regional bank|
|High performers Low performers High performers
Attended tier 1 undergraduate
Undergraduate grade point
average between 3.5 and 4.0
Graduated from college in top
10% or with honors
Completed master’s degree
Graduated from graduate school
in top 10% or with honors
Served on corporate/institutional
board in past 3 years
Conversationally proficient in
at least two languages
Served in armed forces
10 4 13 0
43 26 52 40
43 24 62 50
46 33 71 33
19 8 39 17
24 40 81 67
14 0 15 0
5 4 8 0
through rotation, so they will tend to get talent in from the outside. But while
each company will gravitate naturally toward a dominant sourcing method,
no company should rely exclusively on one strategy, just as no company would
rely on a single vendor for a critical commodity. Continuing to invest in
secondary sourcing strategies helps achieve balance and diversity.
Hewlett-Packard captures people early through summer internships and
part-time jobs for high school students. One US-based accounting firm hired
a third of one year’s graduates from a top Indian college. The Home Depot
hires its competitors’ best employees. Enron recruits retired military o˜ficers
because “people from the army are used to traveling a lot, and this work is like
what they have been doing.” Ten years ago, McKinsey’s new hires were almost
all MBAs; now over 40 percent are lawyers, doctors, economists, scientists,
military o˜ficers, or former government o˜ficials.
Talent-winners also recruit continuously, rather than simply to fill openings.
Thirty-one percent of HR directors at top-quintile companies strongly
agree that they are always looking for great talent and bring it in whenever
they find it, compared to only 9 percent at mid-quintile companies. Arrow
Electronics is “constantly looking at our competitors, suppliers, and customers to spot great people.” At Baan, “Everyone must be a talent scout.”
Companies whose approach to hiring is to fill any open slot within three
months should expect to lose the talent game.
Even where the dominant strategy is to spot talent early and train it within,
companies should consider regularly hiring senior executives from outside.
Rather than seeing this as a failure of the internal development pipeline, they
should view it as a way to accommodate rapid growth, refresh the gene pool,
and calibrate the internal talent standard.
Bill George recruited many new hires to facilitate Medtronic’s moves into
new products and geographies. Amgen has hired in close to a quarter of its
top 500 people to feed 50 percent annual growth. Despite the success of its
internal development e˜forts, General Electric routinely fills up to a quarter
of its senior openings from the outside to calibrate its talent and raise the
bar. Nor should companies hesitate to go outside their own industry. Sears
hired Gulf War general Gus Pagonis to run its logistics; Banc One hired Taco
Bell head Ken Stevens to lead retail banking.
Developing talent aggressively
Elevating talent as a priority throughout the company, developing a sound
employee value proposition, and ensuring your sourcing strategy is a powerful
one will do much of what is needed to make your position in the market for
talent compelling. Our research suggests that there are also a number of
THE WAR FOR TALENT
54 THE McKINSEY QUARTERLY 1998 NUMBER 3
specific steps to do with development that companies should take to complete
their talent program.
Put people in jobs before they’re ready
Academics and HR professionals have long known what our research
confirms: the key to development is “a big job before I expected it.” Yet only
10 percent of “top 200” executives strongly agree that their company uses
job assignments as a very e˜fective development lever. Forty-two percent
have never made crossfunctional moves, 40 percent have never worked in an
unfamiliar business unit, 34 percent have never held a position with P&L
responsibility, and 66 percent say they have never had a leadership role in
starting a new business.
All sorts of reasons explain this sorry state of a˜fairs: there’s o˜ten precious
little clarity about who should be developed, let alone how; senior people
worry that moving people around is not worth the disruption; divisions hoard
their best sta˜f; and HR executives, who should know better, are o˜ten
preoccupied with training and other “auditable” initiatives. But like it or not,
people learn by being put in situations that require skills they don’t have — a
truth poorly served when “Who can do this job best right now?” dominates
All companies could do better. At a structural level, they should consider
what they can do to form smaller, more autonomous units, create the
maximum number of P&L jobs each business will bear, and use special
project teams to provide new challenges and ways of working together.
Overall, the characteristics that make a job good for development are similar
to those that make it attractive in the first place, with one notable exception:
executives always prefer to have full control over everything they are
responsible for, but jobs that require them to achieve results by influencing
rather than controlling others contribute powerfully to their development.
Put a good feedback system in place
Everyone knows how important feedback and coaching are, yet most
companies don’t do them very well. Seventy-three percent of executives view
informal feedback and coaching as essential or very important to development, but only 30 percent rate their company as excellent or very good at
providing them. Sixty percent strongly value being mentored, but only 25
percent are content with their mentoring.
Good feedback and coaching raise everyone’s game, not just that of the high
flyers. Fortunately, companies can nudge leaders to o˜fer more feedback
through “360-degree feedback” programs (where contributions come from
those above, below, and around an individual) and other formal mechanisms.
Arrow Electronics uses its 360-degree feedback system, monitored by CEO
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 55
Steve Kaufman himself, to determine whether managers are actually
providing the feedback and coaching that they should.
Understand the scope of your retention problem
Most companies recognize they could improve recruitment and development;
few realize they have a retention problem. They focus only on the top 200
executives, where average attrition is below 4 percent a year. But it is the
early and middle ranks of managers three to eight years out of college, their
basic training already paid for, that represent a company’s investment in its
future. Senior executives seldom notice them, and they may not feel connected to the organization; they are also more mobile and demanding. All
in all, this is a volatile mix. The situation will come to a head as the number
of 25- to 34-year-olds continues to decline over the next decade, and as their
perception of future opportunities dims with the preponderance of older
executives occupying the top positions in most companies.
Paradoxically, it is the companies that have done the best job of recruitment
and development that may be most at risk from poaching. But every company
needs to understand why its high performers are leaving. Attrition must be
tracked by performance level. The common practice of tracking voluntary
as against involuntary attrition is not good enough: it’s probably your high
performers who are choosing to leave.
Creating and delivering a great employee value proposition is clearly the best
way to retain people, yet only 16 percent of those surveyed say they are
e˜fective at giving high performers more exciting jobs to retain them. What
can you do? Start by giving them a sense of belonging; as John Doe of Arrow
Electronics points out, “It’s harder to quit if you are having lunch every
quarter with your mentor.” Send them a clear message that they are valued:
two very well-run companies recently discovered that several high performers
had no idea that they were highly regarded and were being groomed. And
wherever possible, give them a great boss.
Just as account managers nurture and develop their key accounts, someone in
every company should be responsible for nurturing and developing each key
employee. Top-potential people should never fall o˜f the screen.
Move on the poor performers now
It’s hard to give all your high performers a great boss if too few of your bosses
are high performers themselves. Most companies have a number of weak
players in their organization. They aren’t exactly failing, but neither are they
leading the way.
The cost of carrying such people is enormous. Don’t fool yourself that weeding them out will destroy morale; it’s probably lower than you think already.
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56 THE McKINSEY QUARTERLY 1998 NUMBER 3
Their low productivity drags down the performance of all they work with:
teams go underdeveloped, and high performers get discouraged and leave.
The weak performer ends up surrounded by a circle of weak performers, the
ripple e˜fects flow out across the organization, and the company’s employee
value proposition is damaged.
Our research suggests that taking action to deal with poor performers is the
most di˜ficult, least exploited talent-building lever for any company. Indeed,
ine˜fective people o˜ten stay in position for years.
Di˜ferent companies deal with weak performers in di˜ferent ways. AlliedSignal moves them out: “When a career stalls, it is better for us and them to
move them on.” The Home Depot tries to move them into a job where they
can do better. Arrow Electronics takes every care to make the process tolerable: “A˜ter we have made the decision to remove someone from a job, [we
treat] the person with velvet gloves to make the transition as easy as possible
for him or her.”
The more respect and care that can be brought to this process, the better.
But however you do it, do it.
Establishing the right mindset, cra˜ting a powerful employee value proposition, sourcing, developing, and retaining talent — it all makes for an enormous
challenge. Companies start from many di˜ferent positions and vary widely
in the strength of their existing bench. Some have powerful, sustainable
employee value propositions; some cannot even articulate why a talented
person should join them. Some companies have a talent-building process but
no follow-through; others have no process at all.
There are also di˜ferent ways of getting going. A company undergoing a
turnaround will have to bring in top talent fast to bring about a transformation in its employee value proposition. Companies in less dire straits can
work more gradually on refining recruitment, employee value proposition,
development, and compensation simultaneously. The key is to start now. The
coming war for talent may seem like a crisis, but like any crisis, it’s also an
opportunity to seize — or squander.
THE WAR FOR TALENT
THE McKINSEY QUARTERLY 1998 NUMBER 3 57
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