Is your organization better off stealing star employees from a competitor, parachuting a leader in from outside or would it be better to grow your own stars and develop leadership from within?

That was the question being addressed by a session presented by the Richard Ivey School of Business at their ING Leadership Centre in downtown Toronto, Canada. The session title had me intrigued: Finding Your Next Top Talent: Perspectives on transferring leadership and developing stars. The session was presented by Professor Glenn Rowe, the Paul MacPherson Chair in Strategic Leadership and Goldman Sachs Canada CEO Tim Hodgson.

A star performer is defined as an employee who achieves a disproportionately higher level of performance than colleagues. This of your absolute best employee compared to his or her coworkers.

According to research by Professors Rowe, Boris Groysberg and their colleagues, the likelihood that a star employee plucked from another company can duplicate his success within your company is very slim. The main reason is that the star employee’s success had a lot to do with the specific operating enviroment and supporting cast of your competitor and less to do with his or her raw talent.

Within the financial services industry the research showed that men suffered a PERMANENT 20% decline in performance after moving to the new company, never able to achieve the previous level of performance. Women were generally able to maintain their level of success. The reason for the difference is that in this male-dominated industry, the men’s success had a lot to do with the internal relationships within their firm which they found difficult to duplicate after changing companies. The women tended to form better networks outside their firm and were able to continue those relationships after changing companies.

Some companies have attempted to pluck an entire team away from a competitor, hoping to duplicate the chemistry the team enjoyed. This is a high risk, high reward strategy. It can destroy the company aquiring the team because of the clash of culture.

Transplanting a star into your organization can create resentment in colleagues who feel that their longer term commitment to the organization is valued less. If the new star is given more money or perks to attract them, it only makes the situation worse for colleagues. And you can imagine how things look when the new star doesn’t actually achieve the big leap in performance everyone expected.

Professor Rowe said that it can take 3-5 years for a high performer to unlearn some of the things that helped them in their previous company and establish a winning record in their new company. Unfortunately the tenure of a star performer is often fewer years. They tend to leave because of either being attracted to yet another opportunity elsewhere, or because of being managed out of their new firm when the promise of big performance fails to materialize.

Goldman Sachs has fared better than its global competitors within the finance industry. The company looked to General Electric (GE) and specifically GE’s Crotonville Leadership Center and then developed their own Pine Street leadership initiative in 2000. GE’s former CEO, Jack Welch is said to have dedicated up to 30% of his time to developing leaders within GE. Similarly, when Goldman Sachs identifies a high impact employee with leadership potential, they make sure the person gets formal training, special job assignments and mentoring to help them develop their leadership potential.

Goldman Sachs also employs the controversial policy of purging the bottom 5% of performers. Sometimes more, during difficult times. This achieves two things. First it shows that there are consequences for poor performance and behavior. Second, it gradually builds up the average and total performance of the team. Terminating employees needs to be done with class and respect in order to avoid creating a lot of negative perceptions about the company.

Goldman Sachs effectively uses 360 degree feedback in conjunction with job performance to determine overall performance and leadership potential. This does not mean that every top performer is a future leader because they may be better off remaining in a role at which they enjoy and excel. Hodgson makes it clear that if your treat people poorly and yet hit your numbers, that isn’t good enough. The wake of destruction on the performance of others far outweighs the individual contribution from the star performer. He also admits that your organization and its leadership need to support the idea of 360 feedback or it might blow up.

So what does it mean to your business?

• Your only sustainable competitive advantage that cannot be copied by competitors is your company culture and the strength of your leadership. Does your culture reinforce innovation, results and relationships? Think about your performance in terms of numbers and the capabilities of your employees. Are they both growing, declining, or mis-matched?
• Growing your leaders from within likely has the greatest probability of success except in some very limited situations. How actively does your organization identify, groom and deploy leaders? If you do not actively identify and develop leaders, top performers might leave because of lack of opportunity and your organization will never achieve its true potential results because people are not being stretched to grow.
• If you are known for developing excess leadership talent, your organization is more attractive to the best and brightest. The fact that some of these employees might leave should not be a deterrent because your organization will likely benefit from them having created lots of value along the way. Plus, actively developing leadership talent increases your bench strength so that you are less reliant and have less risk when a top performer leaves.

The Implications to You as a Star Performer

• Beware of the “grass is greener” syndrome. Think objectively about how much of your success is due to your own efforts and how much is due to the influence of your company’s systems, strategy, positioning, culture and coworkers. It may not be as easy as you think to establish yourself as a superstar in the new organization.
• Really get to know the people in the organization you are moving to. Goldman Sachs conducts between 15 and 25 interviews in the rare case they do hire a superstar from another firm. This due dilligence helps ensure a good fit between the individual and the new organization.
• Actively seek out opportunities to build networks and relationships outside of your organization. These networks can help your current success and make it easier should you ever decide, or be forced to leave.

Developing Leadership Talent From Within

• Recruit employees with great attitudes, an ability to learn quickly and potential for growth. If you’re not hiring great employees, we can help you refine the process from interviewing to selection testing. Although never fool proof, refining your hiring process will save you lots of aggravation later, plus create more value and growth in your company.
• Have the senior leaders regularly evaluate the performance and potential of employees. Look for signals that a person possesses leadership potential. We can help you define and implement a more effective performance management process including training for both reviewers and reviewees.
• Give your high-potential employees an opportunity to take on different challenges and continue to give them feedback on performance. Use a zig zag approach, where you give them a special project, or out-of-their-element opportunity to learn, then move them into a leadership position in a different area. We can help your management team create a Talent Review Process to help manage the careers of your high potential employees.
• Confront and continually pare down (outplace) your bottom 5% of performers. This sounds harsh but a lot of good and top performers lose respect for management when they see that there are no consequences for poor performance or unacceptable behavior. Handle the termination process with dignity and respect. The money you spend on outplacement counselling and severence should be more than made up for by improvement in your results and the signals sent about the expectations. Caution: Just implementing this policy without building a culture of performance first will be destructive.

How can we help your organization build up its star power and leadership strength to generate top results? We invite you to call or email and have an initial conversation.