Session 6

The Talent Myth

War for Talent- what is the difference?

Best companies, McKinsey preached: Leaders obsessed with the talent issue.

Singled out and segregated stars. Rewarded them disproportionately. Pushed them to even more senior positions. Placed premium on first-tier business schools. Lavish compensation packages. System is only as strong as the stars.

Enron Timeline

1985 Enron was created on merging Houston Natural Gas and Interworth by Kenneth Lay. Jeffery Skilling Joined as McKinseys consultant at Enron. CFO Andrew Fastow. McKinsey earned 10 billion dollars a year and has done 20 projects for Enron, was on the board. Enron rated most innovative company in America in 2000 by Fortune magazine. Skilling sold most of his shares after he retired citing personal reasons in August 2001. Stock price 90$ in mid 2000 plummeted to 1$ by Nov 2001. Filed for bankruptcy by Dec 2, 2001.

The case of Enron contd...

Skilling started his corporate division in 1990 Enron Capital and Trade brought MBAs from the best of colleges. 250 MBAs a year in the 90s. Super Saturdays. Kenneth Lay said Enrons talent differentiated them from their competitors.

Did Enron fail in spite of its Talent mind-set or because of it? What if smart people are overrated?

McKinseys Differentiation and Affirmation

As to be challenged and disproportionally rewarded.- Bonus was two-third higher than B Bs to be encouraged and affirmed. Cs to be told to shape up or be shipped out. Rank and yank process But how to rank?- did not spent enough time

How to appraise-> select the best Link between I.Q and job performance is distinctly underwhelming. Corr=0.2-0.3 People with I.Q might not pick up effectively common-sense sort of things like working with people. I.Q is not also equal to ethics/morals. That is tacit knowledge. Employer should assess performance not potential.

The Talent flipside at Enron

Freewheeling culture. Annual turnover on promotions was 20% Peter Principle- promoted to their level of incompetence Performance evaluations were not based on performance. People deemed talented were pushed. For E.g. Lynda Clemmons (weather derivative) in 7 years jumped from trader to heading a business unit. How do you evaluate someone's performance in a system when no one is in a job long enough to allow such evaluation

The Talent flipside at Enron

Lou Pai (power trading business)lost 10s of millions of$ in selling electricity to residential customers in newly deregulated markets. Further he was given commercial electricity outsourcing business which ran up several more years of losses. Every time Pai failed he was given new opportunities, because he had talent; does definition of talent remains permanent?? So what should be an organisation's RISK focus?? willing to tolerate mistakes? Is Talent separate from performance??

The Talent flipside at Enron

Kitchin - Enron-online trading project; not an expert but likes to do 250 people working for it. Skilling gets to know after 6 months. Open market hiring 50 people would leave to the new business unit, leaving holes in the existing ones. the kind of behavior that will continue to drive the company onward Needs of customers and shareholders were secondary to the needs of its stars. We allow people to go in whichever direction they want to go ????

The dark side of charisma

Hogan, Raskin and Fazzini 3 types of flawed managers:

High Likability Floater- never take difficult decisions Homme de Ressentiment.- plots against enemies Narcissist

Resist accepting suggestions Great confidence. Self nominate. Will take more credit for success than is legitimate Avoid responsibility and will not own up failure.

Celebrating Talent

Two groups of school students: test One praised for efforts; other for intelligence Results?? Reluctant to tackle difficult tasks Write letter to another school students describing their experience Lied about perf; adjusting grades upwards Got a self-image, which was threatened in difficult situation, so they started lying.

What happened to talent at Enron?

Talent was given newer opportunities and tolerated for mistakes. War of talent was about indulging A employees and fawning over them. This inflated their ego. When their self image was challenged they cannot face consequences, they lied. The braggadocio, the self-satisfaction- could be an epitaph for the talent mindset.

The Talent Myth

Talent is Potential?

Performance must be the criteria More often than not, its the other way around System must be the Star

People make organisations smart?

Stars make system?

Though lives are enriched by individual brilliance,

Only those organisations are successful where the system is the star and not the other way around. Cases of Wal-Mart and Procter and Gamble-> carefully conceived systems

If everyone has to think outside the box, maybe it is the box that needs fixing.