If Everyone Had to Think Out of The Box, May be The Box Had to be Fixed

Are smart people overrated? Do smart people deserve a place in the organization just because they are smart? These are the questions which Malcolm Gladwell tries to answer in his inimitable style in What the Dogs Saw, the freewheeling book, casting its net on a wide range of topics with liberal scattering of Gladwell’s matchless wit and insight.

At the height of the dot-com boom of the 1990s, several executives at McKinsey & Company, America’s largest and most prestigious management-consulting firm, launched what they called the

War for Talent. Data collected from thousands of questionnaires, focused attention of three days to specially identified eighteen companies, interviewing everyone down from CEO, McKinsey wanted to document how top-performing companies differed from others in hiring and promotion. The three McKinsey consultants - Ed Michaels, Helen Handfield-Jones, and Beth Axelord – found the differences profound.  They claimed the very best companies had leaders who were obsessed with talent issue. They recruited talented people ceaselessly. They “singled out and segregated their stars, rewarding them disproportionately, and pushing them into ever more to senior positions”.

According to the three consultants success requires “the talent mind-set”: the “deep-seated belief that having better talent at all levels is how you outperform your compatriots”. Talent mindset is the new mantra of American management, demanding the high premium on degrees from the first tier business schools.

Talent is all important. The system is as good as the stars. One of the major companies which took the McKinsey mantra of talent was Enron. Enron was a large client of McKinsey with twenty separate projects and billings of $10 million a year. A McKinsey director regularly attended Enron’s board meetings; the CEO of Enron was an erstwhile partner of McKinsey. What happened to Enron since is matter of history. The reputations of its top executives Jeffrey Skilling and Kenneth Lay were destroyed; their auditors, Arthur Anderson were driven out of business. Yet the one partner who comes out unscathed is McKinsey.

According to Gladwell “Enron was the ultimate ‘talent’company”. In the nineties Enron was bringing 250 newly minted MBAs a year. Once in the company, they were rewarded inordinately. According to Lay, former CEO of Enron, “The only thing that differentiates Enron from our competitors is our people, our talent” Richard Foster of  McKinsey who celebrated Enron with his book Ceative Destruction quotes an Enron executive, “We hire very smart people and we pay them more than they think they are worth”. Enron followed McKinsey’s advice in letter and spirit.

The core of The War of Talents is differentiation and affirmation. Employers need to candidly probe through no-holds-barred debate about each individual a couple of times an year. The A types must be challenged and disproportionately rewarded. The B types should be encouraged and affirmed. The Cs have to shape up or be shipped out. The consultants or the clients had little clue on how this had to be done.  

More than five decades ago Peter Drucker had emphatically said that the only thing that matters was performance. Today’s employer is also equally clear that what he wants to assess is performance. Assessing performance objectively is a matter many organizations have not been able to grapple. You can assess performance only when you know what has been performed. “And, in the freewheeling culture of Enron, this was all but impossible. People deemed talented were constantly being pushed into new jobs and given new challenges. Annual turnover from promotions was close to 20 percent…How do you evaluate someone’s performance in a system where no one is in a job long enough to

allow such evaluation?” The answer is that you end up evaluating everything other than performance. Here is an example by an admiring book by Gary Hamel, Leading the Revolution. Lou Pai launched Enron’s power-trading business. Pai failed to grasp the implications of the new deregulation of the market causing loss of tens of millions of dollars. He was promptly given the chance to build the commercial electricity-outsourcing business which lost several millions of dollars in a few years. As Pai was talented he was given opportunity after opportunity each time he failed before he was shipped out with a huge golden hand-shake. Hamel writes appreciatively that in Enron failures even big enough to figure on Wall Street Journal front pages would not sink a career. Gladwell asks, “…if talent is defined as something separate from an employee’s actual performance, what use is it exactly?”

Gladwell continues, “The broader failing of McKinsey and its acolytes at Enron is their assumption that an organization’s intelligence is simply a function of the intelligence of its employees. They believe in stars because they don’t believe in systems” They assume that it is people who make organizations smart. Indeed, Relativity was discovered by an individual; Nobel winning novels were the creation of individuals. The individual, the smart individual, therefore, is paramount. Yet, more often than not it is the organization that makes the individual smart.

A look at some of America’s most successful companies will provide ample evidence of this. Southwest Airlines is by far the most successful of all US airlines because it has created a much more efficient organization than its competitors. Its turnaround time – that is the time between just landing and takeoff – is twenty minutes with a crew of four and two people at the gate as compared to thirty-five minutes with a crew of twelve and three persons at the gate for United Airlines. Southwest recruits a few MBAs, pays its managers modestly and gives rises on seniority.

Procter & Gamble, a venerable American FMCG company does not have a star system. It does not attract MBAs. It is not a glamorous company. But it dominates the FMCG business for almost a century. It has “a carefully conceived managerial system, and a rigorous marketing methodology that has allowed it to win battles for brands like Crest and Tide decade after decade”.        

Gladwell raises some pertinent questions about the God almighty of consulting business, McKinsey. “The one Enron partner that has escaped largely unscathed is McKinsey, which is odd, given that it essentially created the blueprint for the Enron culture.” He goes on to add, “McKinsey was as much a prisoner of the talent myth as its clients were. In 1998 Enron hired ten Wharton MBAs; that same year, McKinsey hired forty. In 1999, Enron hired twelve from Wharton; McKinsey hired sixty-one. The consultants at McKinsey were preaching Enron what they believed about themselves. …They were there looking for people who had the talent to think outside the box. It never occurred to them that, if everyone had to think outside the box, may be it was the box that needed fixing.”

By V.K.Talithaya (vktalithaya@managementmasala.com)

On 4/20/2014