With the economy only slowly emerging from its slump, many professional services companies such as consultants, law firms, and advertising agencies complain that they can't afford to hire new employees until they see revenues rebound. But author Thomas Tierney argues that these outfits -- many of which got whacked by the downturn -- actually can't afford not to hire. That's because the usual blather you hear from corporations about people being their most treasured asset (except, perhaps, during layoffs) is really true for these businesses, which also include accounting, software, and other information technology companies.
From 1997 to 2000, Tierney, former chief executive of global strategy consultancy Bain & Co., and Jay Lorsch, a professor of human relations at Harvard Business School, studied the practices of more than 50 companies, including investment bank Goldman Sachs, consultant McKinsey & Co., law firm Skadden, Arps, Slate, Meagher & Flom, and IBM Global Services. The key to their success, discussed in Tierney's and Lorsch's book Aligning the Stars: Organizing Professionals to Win (Harvard Business School Press, April 2002), is their ability to recruit and retain highfliers. Their livelihood hangs on their ability to sell the time of a stable of in-house talents. And these people burn out, move on, or retire even during recessions -- and need to be replaced.
Lorsch and Tierney, who's now chairman of Bridgespan Group, an outfit that does consulting for nonprofits, define stars as the employees in key functions whose performance ultimately determines how successful a company is. Their absence is noticed almost immediately by both the business and its clients, the authors say. True, every employee matters, but the authors maintain that top providers of professional services rely heavily on a relatively small number of stars to succeed financially, burnish their reputations, and survive the test of time.
Recently, BusinessWeek Online reporter Eric Wahlgren chatted with Tierney about why companies should be hiring now, why they should be looking for stars, and how they can keep them. Here are edited excerpts of that conversation:
Q: You say that even in a downturn, companies, especially professional services outfits should fill empty positions -- and even add new people. Why?
A: Professional services firms rely on highly skilled talent. That talent over time creates your competitive advantage. Highly educated people are hard to replace.... Basically, businesses whose economics are driven by high-end people have to maintain a flow of star talent. If they don't, they run the risk of falling behind their competitors.
The irony is that recessionary times -- when the last thing you're thinking about is adding to your payroll -- are when you're best able to attract stars. When times are good, try recruiting star talent. Think about Silicon Valley in the late 90s. But now may be an excellent time for a company to recruit outstanding people from its competitors.
Q: If companies should be recruiting talented executives, how do you get those who still have good jobs, and are thus the most desirable, to make the jump when the job market is shaky?
A: The way that the best firms attract talent, whether it's IBM Global Services, Goldman Sachs, Korn/Ferry, or Heidrick & Struggles, is to have stars recruit stars. In other words, it's a personal appeal. It can't be any other way. If I'm trying to recruit you, I have to do that in a personal way to give you confidence that the risk of switching is low.
Therefore, it's very difficult to outsource this kind of recruiting. It's very difficult to have the HR department do it. It's almost impossible to have third parties do it. If you're trying to attract star talent in what might be perceived as a risky situation, it has to be a personal appeal.
Q: So you shouldn't just hand off the job to a headhunter?
A: The recruiter can narrow the field. But when it comes to making somebody an offer to join, it has to be a general manager or a senior person in the company looking at somebody across the table saying: "I want you to join. And if you join, I personally am going to be certain you succeed."
Not every senior exec recruits. But some spend quite a bit of their time recruiting. Even as CEO of Bain, I spent 10% of my time recruiting -- one day every two weeks.
Q: It sounds like a company has to recruit a heck of a lot of people to get a star?
A: In these kinds of professional organizations, for every 10 people that are hired -- sometimes 20 -- only one makes it to partner. That's partly because some wash out, and partly because some decide to do other things.
Star-driven organizations tend to be rigorous in their performance-feedback systems. They tend to have some version of "up or out" quality control. They also tend to be very thoughtful about deploying people to give them the right kind of development opportunities.... Stars can generally do two things really well. They generally are rainmakers -- that is, they add valued clients -- and they're star makers. They rejuvenate the flow of talent into the organization.
Q: So what about the nonstars, the people who may be better than average but not quite top performers? Shouldn't management be fostering a culture that encourages everyone to shoot for stardom?
A: Developing stars and raising the level of the organization aren't mutually exclusive. In other words, star-driven organizations are generally trying to raise the level of the entire organization. What's important is that the standard of performance throughout the organization is exceptionally high. Stars are attracted to that kind of organization because they know they're going to develop there.
As a consequence of high standards, there's a certain amount of turnover because not everybody either can meet those standards or wants to meet those standards.
Q: But aren't you saying that because stars are so important to an organization's success, companies should focus on them instead of on employees who could use a little help?
A: Of course, you don't neglect other employees. But you're worried about your current stars and your future supply of stars. So you're worried about, for example, your partner-level executives and your future partner-level executives. You have to have that flow. One of the characteristics of these organizations is that they're generational. You always have people retiring.
The acid test is that if you replace A players with C players, would your customers notice it, and if so, how soon? In the cement business, they aren't going to notice it anytime soon. In the consulting business, they're going to notice it right away.
Q: If stars are so important, how would you recognize one if he or she walked into your office?
A: Two things are most important: Skill and fit. Skill is simply: Do you believe they can do the job not only at the entry level, but in subsequent jobs? Can they grow? That's a capability question.
The second question is fit. The prominent characteristic of these organizations that succeed in the marketplace and endure multiple generations against all kinds of competitors is a very strong culture. Culture is based on people. Will a particular recruit hold dear over time the same values that we hold dear? Will the recruit behave in the same way we want that person to behave? Think about culture as being the way we do things around here, particularly the way we do things when no one else is watching. Culture controls behavior more than any policy manual can control behavior.
Q: Now that you've identified the stars, how do you get them to stay at your company? Don't the best people get itchy feet?
A: Stars, more than anything else, want to learn. That means they want to continually move through a set of assignments. They may or may not need to move up a hierarchy. But they definitely need to move up a learning curve. Therefore, how these people are assigned is really important. In fact, it's far more important than training programs.
Feedback and performance management (activities an organization undertakes to improve the performance of its key people, such as performance evaluations and peer review) are also critical for stars. And it isn't just the formal performance review every six months or every 12 months. It's daily feedback from the people they work with. These people are ambitious, so they're going to look for indications that they're succeeding in an environment. And those indications can be compensation-related, recognition-related, or promotion-related.
[And] although they're typically more independent folks, stars also have a need for affiliation. They want to be part of a bigger mission.
Q: What tips would you give to the star or rising star who's trying to evaluate whether to stay at a company or go to a new one?
A: First, it's important to build a life, not a r?sum?. The people who feel best about their contribution are people who are focused on doing what's right for them, not what somebody else thinks might be right. The second thing is: Don't just follow money. You can talk to a lot of ex-Internet executives who could now tell you that also.
When looking at a company, I would focus on leadership and on the culture. I would ask people how do they get to be leaders, and what are the leaders like as people. If you were stuck at the airport in Chicago in a snowstorm with these people, how would that be? Do you feel their ambitions are consistent with your ambitions? If the answer isn't yes, then you shouldn't be in that organization.
The last thing is: When you're evaluating leadership and you're evaluating the culture, apply very, very high standards. Inertia is a powerful force. Once you're in an organization, inertia will carry you along. So be very thoughtful when you switch that you're going into something that's right for your life.