Boris Groysberg, Harvard Business School professor, encourages you to develop stars within your company, for example, through strong training and mentoring programs.
Paul Michelman: Hello, I'm Paul Michelman from Harvard Business Digital, and I'm here today with Harvard Business School Professor Boris Groysberg. Boris, thanks for joining the program today.
Paul Michelman: Thank you for having me.
Paul Michelman: Boris, our mission today is to help our audience understand the why's and how's of grooming top performers from inside the organization rather than importing it from the outside. Boris, when it comes to filling important roles, companies often look to the outside to bring in top performers who have established themselves as stars at other firms. But, your message to companies who are thinking about doing that is buyer beware. Why is that?
Paul Michelman: Paul, you are absolutely right. And actually, what we know is that more and more companies are actually fulfilling the positions from outside hires. So in the research that I did with Ashish Nanda and Nitin Nohria, what we did is we basically got all the information in investment banking on 1,000 plus star Wall Street analysts.
And just let me just tell everybody why we picked this particular labor market. The reason why we picked analysts is that, if you think about poster children for who free agents are, analysts in the 1990's were considered to be free agents who could not care less whether they worked for Company A or Company B.
So we looked to those people who actually just had to simply just cross the street to go to another employer. They did exactly the same jobs, they actually had the same clients. And what we found is that when they when they actually got employed by new firms, their performance declined. And it wasn't just a temporary performance decline. They suffered performs decline that lasted 4 or 5 years. So our explanation for this is that what makes people stars in organizations goes beyond their individual abilities. It's actually colleagues around them, it's supporting functions, it's IT systems, it's the corporate culture.
And when they actually move from one place to another, they basically leave all those things behind. Well smart stars are trying to recreate this with a new employer. But if you think about relationships, mostly relationships are built on trust. And to develop trust takes a lot of time. So that's why you actually see them under performing for a significant amount of time.
Paul Michelman: So the evidence suggests that bringing stars from the outside is not good policy. That means we need to develop our own stars from within. Where does that process began?
Paul Michelman: So in the industry that particular case was studying, there are actually very few companies that systematically think about developing stars like from the beginning to the end. And some companies that come to mind are like Goldman Sachs, Alfredson Bernstein.
And what they did is it starts basically with identifying what are the right skills and attributes that I would like to have in an employee who is joining, for example in this case my research department? And what was also interesting, in this case, is they also had very strong training and mentorship programs. And some of them more formal and some of them informal.
They actually take somebody with their own hand and teaches them how to interact with clients, how to do the industry reports, how to actually produce a product desired by the market. So you have this mentorship and development that's the key of making somebody into a start. I think after that, the great companies are also figuring out the way of trying to communicate the best practices so people who are the top stay at the top.
Paul Michelman: Should high potentials know that they're high potentials? Is that a part of the development process?
Paul Michelman: So I think there is actually somewhat of a debate of whether high potentials should know it and how identifying high potential relates to the rest of the organization. I think high potentials want to know that they're actually high potentials. I think the key with a lot of companies is what happens to the majority of employees who all of a sudden are labeled not high potentials. I mean when this process is more open and transparent.
So I think that's an issue that companies are dealing with. It's rewarding the high potentials by basically singing them out. And the companies very in how they identify high potential. For some of them, it's whether you can be promoted twice in the next five years or something like that. But the key is also, what do you have to do to make sure that others are not demotivated by not being in this high potential category.
Paul Michelman: As your research suggests, for better or for worse, your stars are likely to get noticed by the outside world, by other firms, which is of course where this process begins. So once you've done a good job of developing a high potential and turning them into a top performer, how do you keep them from bolting?
Paul Michelman: I think that's a great question because it not only requires you to identify talent, develop talent, at the end of the day to win the talent war, you actually have to retain it. What's interesting, I think is it somewhat goes opposite to the myth out there that stars are more likely to actually leave their employees.
What we do find in that research was this piece of research that I did with Ashish Nanda that stars are actually less likely to leave their company than non stars. They are out there talking to managers, they're out there complaining, they're out there threatening to leave, but they actually don't leave.
So if you look at the turnover of stars compared to the turnover of non stars, it's actually half the rate. But it's still a significant number. So when you think about retention, what are the processes that organizations have to be able to keep their best and brightest?
I keep being reminded of this great saying that employees don't leave jobs, they actually leave managers. That's also true for stars. So, organizations that are actually transitioning from one manager to another have to be really careful because they might actually get transition and lose a number of talented people who would leave to other firms.
The other thing that we will also find is that under performing organization tend to lost people more often than that of organizations that can perform well. We also find that when you look at the department's, the small and the large departments are able to retain the people. It's the departments that are stuck in the middle, who actually tend to lose a lot more people. So, that's more on an organizational side.
On an individual side, we whined that people who have extended service. If you go to page eight of somebody's CV to kind of realize where this person went to college and you see all these employers lineup, this person is most likely to leave you in a short period of time.
The other thing that we know is that the longer the person stays with you, the less likelihood that this person is actually going to leave. But it all comes down in many cases about the environment that the manager creates that keeps the person productive and keeps the person motivated. One of the things that we do also find—this relates to your first question-- is that stars who worked in organizations that have other stars are less likely to leave. So, other stars are almost used as a retention mechanism to keep the talented people from leaving.
Paul Michelman: So, at first blush, a lot of organizations would like to make sure their stars are well dispersed around the company to get value throughout the organization. You're actually saying that's not necessarily a good idea if I understand . You actually want to congregate your stars together. Is that right?
Paul Michelman: What we argue is, I looked at whether having quality colleagues in the departments and functions on which you rely in developing your product or actually selling your product to clients, whether that's a good retention means or not. And what we find is that, simply, if you are working with Department A to produce a product you're better off by having a lot of stars in this department because I will be concerned about leaving and not having stars in another firm. They are actually helping me to produce a better product.
Paul Michelman: Ok. So, last question.
Paul Michelman: Yeah.
Paul Michelman: Do star performers deserve star treatment? It feels like what you're saying here is that they do deserve something that's a little bit different than the average employee. Can you get away with that as a manager?
Paul Michelman: So, I think if your performance evaluation process is fair, if your performance evaluation process is transparent-- and I mean to suggest a kind of a reflection of a number of labor markets especially the kind of labor markets that have this winner take all type of phenomenon, is that rewards are disproportionately allocated to the best and brightest. But even if you look at their productivity, they are just many times more productive than an average employee.
Now, the key for a manager that has stars and non stars, you actually have to have B players-- a colleague of mine, Tom DeLong, has written extensively about this-- for a well functioning organization. A players might not be getting the most idiosyncratic views, but they're different for the sole reason they are actually performing better than everybody else and that should be rewarded.
Paul Michelman: Boris Groysberg. Thank you very much.
Paul Michelman: Thank you.