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First Quarter 2002 / Issue 26 (originally published by Booz & Company)

The Talent War Is a Losing Battle

Companies fighting the so-called war for talent believe if they attract and retain the best and the brightest individuals, they will win. But this presumes, first, that it’s easy to identify the best people and their ability is a stable quality. And, second, it assumes that organizational performance is only the aggregation of individual performances. Neither assumption stands up to scrutiny.

As the San Francisco Chronicle sports commentator Ira Miller noted in a recent column, even in professional football (where one would think that individual ability could be assessed reliably), unlikely stars have emerged. Kurt Warner, who was the MVP one year and the NFL’s top-rated passer, was not chosen by any NFL team in the draft and “once refused to go into a practice because he didn’t have enough confidence in himself to throw a pass.” Michael Jordan was cut by his high-school basketball coach. In sports, business, or any other competitive activity, neither ability nor motivation is ever static; in fact, both are strongly affected by how people are developed, treated, and led.

W. Edwards Deming and the quality movement long ago showed that an individual’s innate ability matters less in determining organizational success than the attributes of the management system in which a person works. This is nicely illustrated by the General Motors Corporation’s automobile assembly plant in Fremont, Calif., which was closed in 1982 and then reopened in 1985 as a Toyota–GM joint venture called New United Motors Manufacturing Inc. (NUMMI). When GM ran the plant, its work force was plagued by poor productivity, low-quality work, absenteeism, alcoholism, and drug abuse. Under NUMMI management, working with the same equipment and mostly the same people who had been in the GM plant, productivity and quality dramatically improved, and absenteeism and discipline problems plummeted.

Paradoxically, the system — organizational processes and social dynamics — unleashed in a war for talent doesn’t seem to allow people to do their best. Companies preoccupied with determining best and worst performers often downplay attributes critical to building cultures and management systems that bring out the best in everyone.

People perform above or below their natural level depending on a myriad of factors. One of the most important is expectations. When an organization separates the best from the rest, people who could do better but aren’t pegged as stars may become discouraged. Where do they stand? Why should they care about improving? Even worse, expectations of failure may cause anxiety that induces poor performance.

Another war-for-talent weapon — differentiated pay based on individual performance (which means the more one person makes, the less another makes) — discourages teamwork. If you are a plant manager with problems, are you going to signal you’re in trouble by reaching out to colleagues for help? Not likely when you’re in competition with each of them for salary and status. By the same token, what motivation do they have to help you?

Differentiated pay may also discourage learning. Much knowledge-sharing and learning in companies occurs on the job, in informal or unplanned conversations. Setting people up to compete against each other for status and rewards is antithetical to building the kind of trust and collegial relations that encourage spontaneous cooperative interaction. Companies that spend vast sums of money on training, intranets, and knowledge managers and do not benefit should wonder if differentiated pay, or another aspect of their management system, is part of the problem.

This is not to say that compensation tied to performance isn’t important. Pay for performance works best if it is determined by how well a total system (e.g., organization, business unit, or plant) performs, rather than how individuals perform. This is fundamental to such pay systems as profit sharing, gain sharing, employee stock ownership, and plant-wide bonuses. Pay is still at risk if goals are not met, but a collective reward structure diminishes the internal competition that inhibits knowledge-sharing and collaboration. Such a reward structure also increases a sense of community and shared fate that encourages social bonds, which contribute to high performance.

The fundamental flaw in the war-for-talent logic is the belief that organizational performance is simply the sum of what the “best” individuals achieve. Complementary skills, personal chemistry, and leadership are far more important. With the right mix of these ingredients, there is plenty of evidence that a great team can outperform a loosely connected group of more talented individuals.

Jeffrey Pfeffer, [email protected]
Jeffrey Pfeffer is the Thomas D. Dee II Professor of Organizational Behavior in the Graduate School of Business at Stanford University. His latest book, written with Charles A. O’Reilly III, is Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People (Harvard Business School Press, 2000).




The Talent War Is a Losing Battle