"The war for talent" is a phrase coined at McKinsey & Company, by its own account by Steven Hankin in 1997, in a study of how large US companies attracted and kept their best managers. It argued that talent, not capital or technology, had become the scarce resource; that companies should make finding and developing it a priority led by the chief executive; and that they should differentiate sharply between their best, average and weakest performers. The study was published as "The War for Talent" in the McKinsey Quarterly (1998, No. 3), by Elizabeth Chambers, Mark Foulon, Helen Handfield-Jones, Steven Hankin and Ed Michaels, and as a book, The War for Talent by Ed Michaels, Helen Handfield-Jones and Beth Axelrod (Harvard Business School Press, 2001). McKinsey tells the story of the term on its own site. It shaped a generation of talent management, from forced rankings to high-potential programmes and the 9-box grid.
What the study said
The research covered 77 large US companies and surveyed their managers, comparing the best-performing companies with the average. Their conclusions, as the book set them out:
- Embrace a talent mindset. Leaders at every level should believe that better talent drives better performance, and spend their time accordingly.
- Build a winning employee value proposition. Be clear about why a talented person should join and stay: the work, the culture, the pay, the growth.
- Rebuild recruiting. Hire continuously, from many sources, including experienced people from outside, not only graduates.
- Weave development into the organisation. Stretch jobs, coaching and mentoring matter more than training courses.
- Differentiate and affirm. Identify A, B and C performers; invest heavily in the A players, develop the Bs, and act on the Cs, by moving or removing them.
The critique
The most cited response came from Malcolm Gladwell in The New Yorker in July 2002, "The Talent Myth". Gladwell pointed out that Enron had been a model client of the war-for-talent approach, hiring stars, promoting them fast and ranking ruthlessly, and that it had just collapsed. His argument was that organisations succeed through systems more than through stars, and that a culture that worships talent rewards people who look talented rather than people who perform.
Other criticisms followed:
- Forced ranking damages teams. Rating a fixed share of people as C players every year encourages competition over collaboration. Several large companies that used it dropped it in the 2010s.
- Stars do not travel well. Research on star analysts and other professionals found that performance often fell when they changed firms, because it depended on colleagues and systems they left behind.
- It neglects the middle. Most work is done by solid B players, whom a star-focused model takes for granted.
Why the phrase fits Japan now
The war for talent was written for a booming US market for managers. Its premise of a structural shortage of people fits Japan's labour market today better than it fitted America's in 1997. Japan's working-age population is shrinking, job-to-applicant ratios have stayed above one for years, and companies compete for experienced mid-career hires in a way they rarely did when lifetime employment and graduate hiring were the norm.
Some of the study's prescriptions have arrived in Japan: mid-career hiring at scale, employer branding, and differentiated pay under job-based employment. Others fit less well. Employment law makes the "act on the C players" step slow and expensive, and many Japanese companies prefer to develop people internally over buying stars. The lesson that holds is the first one: treat talent as a priority for the chief executive, not a task for the personnel department.
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Questions
Who coined the term "war for talent"?
McKinsey & Company, in a 1997 study; McKinsey credits Steven Hankin with the phrase. It was published in the McKinsey Quarterly in 1998 and as a book by Ed Michaels, Helen Handfield-Jones and Beth Axelrod in 2001.
What is the main idea of the war for talent?
That talented people are a company's scarcest resource, so leaders should make attracting, developing and keeping them a strategic priority, and should differentiate clearly between strong and weak performers.
What was Malcolm Gladwell's criticism?
In "The Talent Myth" (The New Yorker, 2002), Gladwell argued that the approach over-valued individual stars and under-valued systems, using Enron, a celebrated example of the approach, as his case.
Is the war for talent still relevant?
The shortage it described is real in many markets, especially Japan's. The prescriptions that aged worst are forced ranking and the cult of the star; the ones that lasted are employer branding, continuous recruiting and treating talent as a leadership priority.
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By Yan Sen Lu, Managing Director of Makana Partners and Editor of The Hardest Market.
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