Persistent Myth of The Talent Mindset

Persistent Myth of The Talent Mindset

Remembering the Enron Lessons

Even in the midst of a looming recession, many companies continue to regard top talent attraction and retention ahead of planned layoffs despite global economic slowdown and massive internal organizational re-structuring.  They fear losing the right critical people so needed to engage and lead the coming unprecedential onslaught of the next wave of globalization and marketplace transformation.

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 now classic study published in 1998, McKinsey, a strategy consultancy company, published a study entitled ‘The War for Talent’.  This became quickly the choice management fad in the first decade of the 21st century, 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 or development 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. It chronicles the strategic failure to understand the dynamics of human talent which led eventually to the downfall of a company worth more than US$70 billion at its peak.

“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. The company was promoting people based on personal evaluations that were not related to overall performance, and the needs of customers and shareholders were secondary to those of its “stars”. And these, among other factors, drove Enron into bankruptcy and oblivion.

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. 

Enron believed and only hired the best business and MBA graduates from the top US Business Schools. This is its first strategic error.  Indeed, smart people are not measured by school grades and MBAs from top universities, and doing so make them overrated.

The most pervasive, and strategically misconceived, approach to talent management remains the McKinsey’s “star” approach. For McKinsey, talent refers to “the best and the brightest” and many organizations adopted the term to refer to their “A Level” employees who rank in the top 10-20%.  Eventually, companies become focused on just a group of highly paid individuals with MBAs whom they believe to be able to deal better with complexity and uncertainties.  These are also complicated, psychologically unique and high maintenance individuals; they believe more in their own individual performance in a corporate culture which earned them rapid promotions and huge financial rewards.

To be fair, McKinsey’s talent definition did refer to “the sum of a person's abilities … his or her intrinsic gifts, skills, knowledge, experience, intelligence, judgment, attitude, character and drive”.  Supposedly, it also includes his or her ability to learn and grow.  Truth is, everyone is a talent embodied by various skill-set, knowledge, attitudes and other human psychographics.

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 rest of the organisation.

The conventional wisdom, or a true lie, 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.

Talent is overrated and often misunderstood. Leadership expert John Maxwell cautions: “Talent is never enough.  There is little correlation between a person’s effectiveness and his intelligence, his imagination or his knowledge. Intelligence, imagination and knowledge are essential resources. But only effectiveness converts them into results.  By themselves, they set limits to what can be contained.” (The 360 Degree Leader, 2005).

Talent has discarded most of its elitist connotations and now, for HR professionals, refers to the company’s entire workforce, for a better talent management strategy.

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 with a learning and development agenda.   Many young, new talents often became disappointed, realized that their jobs do not always require their level of expertise, did not feel that they are growing, ended up not fitting in, and finally leave.

HR thought-leader David Ulrich takes a holistic view of talent with his definition: [Talent = Competence, Commitment, Contribution] (Ulrich, 2006). To Ulrich, competence means that individuals have the knowledge, skills and values that are required for today and tomorrow. Commitment means that employees work hard, put in the time to do what they are required to do, and to give their discretionary energy to the company's success. Contribution means that they are making a real contribution through their work — finding meaning and purpose in their work.  The corporate cultural context of [competence, commitment, contribution] defines the talent landscape for a truly sustainable competitive talent advantage. 

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