Michaels, Ed

Ed Michaels, a Director of McKinsey & Company, Inc., joined McKinsey in 1969. After 9 years as a member of the Los Angeles Office, he opened the Atlanta Office in 1978. While his consulting experience covers a broad range of assignments on corporate strategy, diversification, and business unit strategy, he has concentrated for the past 10 years on improving clients' growth strategies and strengthening their talent pools.

Mr. Michaels currently leads McKinsey War for Talent Practice, a group of eight McKinsey Partners that are developing new approaches in Human Resource Management and talent management practices. This group recently completed a major research project, The War for Talent, involving 77 companies and case studies of 20 outstanding talent-rich companies to discover "how they do it." This report outlines four imperatives for winning the war for talent in the future. Ed and two other McKinsey colleagues are currently writing a book on The War for Talent, to be published by the Harvard Business Review Press. He also co-leads McKinsey's worldwide Organization Performance Practice, one of the Firm's five functional practice groups.

tompeters.com asks Ed Michaels …

Tom Peters—a former McKinsey partner—is talking about talent and it’s getting a lot of currency right now. We’ve always known about talent. People forever have been saying, “Wow! That person is really good.” Particularly in sports, and yet it seems this concept has been a long time coming to corporate America or corporate world. Why now?

EM: That’s a very intriguing question. I think that there are three or four reasons. The industrial revolution was all about making things, and there were a lot of ways to create competitive advantage. Companies could get low cost raw materials, cheap capital. They might have a monopoly position or geographic proprietary borders.

There was a certain amount of value added by people in an assembly line, one person versus another. But only about 15 percent of the jobs in America now are in industrial companies. We have moved away from an industrial economy to an information and services and high tech economy, in which there are a lot more knowledge workers.

And academic studies and our own studies suggest that the difference in value or output or first quality productivity, whatever you call it, from a top performer to an average or below average performer is over 100 percent. Whereas in an assembly line it’s 20 percent. So there are more knowledge worker jobs and we now know that greater talent in those positions creates more value than it did in the industrial revolution. So that’s one big thing going on, driven by the shift to a knowledge worker economy.

The second big thing going on is that the supply of 24- to 45-year-olds in the United States over the next 15 years is actually declining 10 to 12 percent, at the same time that the economy, presumably, will be growing two, three, four, five percent. There just aren’t enough talented people to go around.

Because of the supply and demand for talent, the power has shifted from the companies, who used to be able to say, “Hey, all you people line up for a job here. We’ll screen you carefully and one of you lucky 12 people will get a job.” The power has now shifted to the individuals. And locating jobs is easier than ever, given sites like hotjobs.com and monster.com. Also, there’s no stigma to changing jobs any longer.

So the combination of those three things—more knowledge workers, not enough supply, and hence the related shift of the power away from companies to people—has created what we call The War for Talent.

Now, overlaid on that is all of our research—and we’ve done two massive studies—that indicates that companies aren’t very good at dealing with talented people. They aren’t particularly good at attracting, developing, retaining, exciting, talented people.

And you say, “Why is that?” Well they haven’t had to be. They’ve had 12 people lined up for that job, and if somebody does leave, well that’s okay, they’ll go get 12 more lined up. And everybody got promoted in turn every three, four, five years, and if you continued to get promoted in the last 10 years of your 30-year career, you would do well financially.

That’s a very good take on it. I think you make it very clear and there’s a logical progression to that. People now are aware of this or they’re being made aware of this, but there are two sides to the issue.

One side is getting leaders at companies to understand that developing talent, while expensive, will pay off in the bottom line, and I imagine that’s a big hurdle to overcome.

But isn’t developing talent really about mentoring up close and personal? And this has never been corporate America’s strength to begin with. Not to overdo a sports metaphor, but think of all the coaches that exist on a baseball team. There’s hardly a position that doesn’t have its own coach. There’s never been anything like that in corporate America. There’s this queasiness about having to get in and say to somebody, “Hey, you’re not good here. What can we do to improve that?”

EM: Right.

Is that in fact a huge hurdle?

EM: Well that’s one hurdle. There’s an even bigger hurdle upstream one or two notches from where you entered the difficulty. First is to get leaders—and by that I mean not only the CEO of a company, but the manager of a store or the supervisor of the night shift in a paper mill—at all levels to recognize that strengthening their talent pool is a crucial part of their job.

And, as straightforward, simple, obvious, as that sounds, here’s one of the questions we asked in our survey, using a sample of 12,000 managers: “Do you think you should be held accountable for the strength of the talent pool that you develop?” Eighty-eight percent agreed. Then we asked: “Are you accountable for the strength of the talent pool you develop?” And only eight percent said they were.

So American companies, big and small—it’s no different in any other country by the way—are not holding people accountable for the strength of the talent pool that they build.

Strengthening the talent pool is not a part of the job description of most managers. So that’s where it’s got to start. If it doesn’t start with that perspective and that mind set, everything else, including a good mentoring program, will be ad hoc and serendipitous at best. It’s got to start with the fundamental realization that at all levels, all leaders have got to make talent their job. They’ve got to be involved in recruiting. They’ve got to be involved in getting people in the right job. They’ve got to be involved in providing inspirational leadership. They’ve got to be a good candid, helpful coach. They’ve got to be willing to weed out people, who are under them, who’ve got other people under them, who aren’t doing a good job. Because it’s not fair to the people under them if in fact they are left under an under-performer who is managing them. But it’s all got to start with the perspective that developing talent is a huge part of any manager’s job.

Right. But the list you just went through was enormous. I imagine a manager would say, “Hey, I’ve got a job to do. I can’t also do that.” If the mind set has never been to do this, to now go in and ask somebody to do it, it sounds like you’re saying, “Well here’s a second job for you.”

EM: Right.

Is that where we are?

EM: Most people don’t take this idea seriously until they run into a crisis. One of the interesting little stories we bumped into was a middle manager in a bank, who had the responsibility for their 70 in-grocery-store branches. The turnover rate of her staff was 70 percent, even higher among her better performers. So she had a crisis, and she had to get in there and figure out what to do to keep people from leaving. She basically made it her job to have her direct reports and their direct reports connect personally and meaningfully with their entry level professional people in the branches in the grocery stores. It became part of their job to understand what the branch employees were interested in, to open up to them jobs in the bank, so they didn’t feel like this was a dead-end job. They also had to help them put together development plans updated on a quarterly basis, to involve them in a lot of special projects to figure out how they could do better.

What we find is people, particularly the younger folks, want to be involved. They want to have an impact on the institution that they’re involved in beyond just their current job, which is a great thing to build on. So this manager put them to work on a second job, so to speak. In addition to their regular jobs, they also worked on task forces.

This manager and her staff did a very good job of identifying their high performers, and they gave them more responsibility and promoted them quicker. They changed compensation on a quarterly basis, instead of an annual basis. She told us she spent 70 percent of her time for 18 months figuring out how she could make the job a better job for those four or five hundred people. She was able to cut the attrition from 70 percent to 15 percent in a year.

But it was all about connecting with, caring about, the front-line professional people in the branch. We’ve collected dozens of stories like that, and the specific tactics in each case are very different. The underlying principle, however, is the same: strengthening the talent pool in your organization is your job. Period. You raised a good point before when you said, “But doesn’t that mean that then I’ve got another three or four hours of work a day to do, and how am I going to do that?”

Really, though, if you do a good job of strengthening your talent pool, what could give you better leverage? Let’s say you’ve got 30 people in your talent pool, and suppose the mix is 20 percent top performers, 60 percent average performers and 20 percent under-performers. What if you can shift that mix to 40-50-10 or 50-50? The leverage in that is enormous. Yes, it does take time, but then a lot of things that you were doing before theoretically and ideally would be done by other people, who could do them quicker, better.

Because they’ll be around a little bit longer to figure out how to do that stuff.

EM: Right. One of the real interesting facts that came out of our two massive surveys was that only 17 percent of the 12,000 managers we surveyed agreed that their companies even knew who the strongest and weakest performers were.

You need to determine who those people are. Ideally you would want to shower your top performers with some recognition, with more responsibility, promoting them early and often, perhaps giving them more money. And your weakest performers may need better coaching and training. Maybe it’s that they’re in the wrong job, so diagnosing that is the first step toward determining whether they can be at least an average or above average performer in your organization. But if you don’t even know that, or if it isn’t a management priority to deal with that, which our research says it isn’t, you’re tying one or two arms behind your back.

I saw Jack Welch on 60 Minutes the other night, and he stated that you do have to find out who the talented people are, and those who aren’t. And the best thing you can do for somebody who isn’t up to operating as a high performer is to get them out of the company, and find a place where they’re going to be more comfortable working.

His point of view is, “Let’s get people into places where they have an opportunity to do best what they can do, and let’s be realistic about who has got the capabilities to do the job that needs to be done.”

EM: Yes. And in an environment where there are more knowledge worker jobs, the value creation differential between a top performer and a below average performer is huge, and in an environment where there aren’t enough talented people to go around … What companies used to say is, “Let’s be fair to Charley, he’s been here 21 years.”

Now companies are going to have to start saying, “Let’s be fair to the 10 people working for Charley. Eight of them are among our best people. We know from what they’ve told us, and told Charley in 360-degree feedback, they aren’t learning anything from him. Their morale’s low, the productivity of the unit is poor,” and so on. Now the ultimate discussion there should never be a surprise to Charley, because he should have had, maybe a year, certainly six months, to raise his game. But most companies don’t give candid feedback. Another one of the interesting facts revealed in our survey is that the great majority of companies and managers have trouble giving candid constructive feedback.<

Is that a confrontation issue? Because you’ve basically got to look someone in the eye and tell him he’s not perfect.

EM: If you don’t, it robs him of important developmental advice. Candor of course doesn’t mean criticism, and it isn’t mean-spirited. Candor means, “Charley, you’re doing a terrific job at these three things. I’m amazed at the way you developed and executed our entry strategy in India. The whole organization learned from that. Now, Charley, there are two things you have really got to get better at, or they are going to be crippling to your advancement in this company.

“Let’s talk about the first one, and let’s develop a plan to go work on it, and let’s talk about the second one, and I personally want to help you on the second one.” You know, that is a candid, affirming, caring, helpful way to deal with someone’s growth as a manager, as a leader.

The problem is that kind of conversation doesn’t happen in many organizations.

When there aren’t enough top performers to go around, that kind of conversation is going to be necessary to turn some of your average performers into above-average performers or just to raise the productivity of the average performer. Perhaps they won’t develop to the point of being promotable to the next level or only to one level, but to strengthen your talent pool, that kind of candor is going to be very important.

Is there a certain set of skills that people need that can’t really be taught? You know, we talk about sports figures having this innate ability. Does that play out in the work world as well?

EM: Yes. I think so. That’s an elusive topic. What you’re asking is what skills are learnable, and which aren’t? Conceptual ability IQ, for instance, is not something that can be developed beyond a certain age. The charisma that some people have is something that probably cannot be developed. You’ve somehow got that or you don’t.

But there are other skills: the skill of being candid, the skill of caring about people, the skill of being an effective mentor and coach. I think those functional and technical skills can be developed.

Do you see where training to be candid with others will become part of a corporate training program? Will a program to help that along become institutionalized?

EM: I think so, but I think it will become institutionalized because it becomes one of the shared values of leaders up and down the organization. When you send everybody to the training programs three times over, but the top three, the top 20, the top 50 people in the company aren’t candid … then it won’t happen. Once again it comes back to the organization’s mind set. Is this notion of strengthening the talent pool important? If it is, and arguably it is in almost all cases, then it’s got to be my job, so I’ve got to work on all of these things, and one of the behaviors that I’ve got to have is one of candor and a willingness to differentiate.

Another behavior I’ve got to have is the commitment to affirming people, even people who are struggling at a particular point in time. One of our chapters in the book is going to be called, “Differentiate and Affirm: The Two Go Hand-in-Hand.” If all you do is differentiate, you’re going to create classes of citizens. But, you know, all companies need average+ performers. And those people ought to feel good about what they’re doing.

I’m going to raise the issue of the difference between men and women, because I hear a bit of that there, and I also heard it echoed once again with Jack Welch. He was talking about his mother, how he’d come home from school, and he had four A’s and one B and she’d berate him for not having five A’s. But then, you know, she’d tell him how much she loved him as well.

And the interviewer at one point said, “Well, Jack, have you become your mother,” for the way he has run GE? Referring to his management style of letting people know when they’re not performing, but then being nurturing as well. We think of that more as a female trait, and I’m seeing more and more news items about how women are better managers than men. Are we on the verge of a society that needs more of a matriarchal hand at the top of an organization?

EM: I might come at it slightly differently. One of the beliefs that we have that we can’t prove quantitatively, and I’m not sure whether it’s going to end up in the book or not, is very related to your question: Does diversity outperform homogeneity? And by diversity, I don’t mean legal diversity. I mean diversity in ethnic background, diversity in right-brain, left-brain thinking, diversity in predominantly male/female traits. Diversity in problem-solving attack skills, diversity in functional backgrounds, diversity in experience. I think that when we see diverse organizations, while they may squabble more, and it may on some issues even take them longer, you tend to get better solutions.

So I would probably espouse what you’re saying, but I’d even take it a step further. When you talk about development—affirming, nurturing, coaching, mentoring—most people think about training. Training is 10 percent of the development equation.

Fifty percent is the sequence of jobs that you have, and 40 percent is the coaching and mentoring and candid feedback that you have or don’t have. And these 12,000 managers not only told us that in that order, but they also told us that their companies were way under delivering a sequence of stretch jobs and even more under delivering coaching feedback and mentoring. They were, however, delivering appropriate classroom training, but classroom training is only 10 percent of development. Ninety percent is what happens or doesn’t happen on the job.

What about the American educational system? Is it helping people to do what they’ve got to do? Would you recommend our educational system work differently? Is it an issue? Is it a non-issue?

EM: We haven’t really studied that. I’ll give you one little incident that I have seen up close. It involves a private school, so it’s a little different issue from the public schools, but I think the principle may still be the same.

This is a good school, maybe not as strong academically as some of the eastern boarding private schools, but a school that is very good at nurturing and developing. It’s an all boys’ school and boys end up being the best that they can be, so to speak.

But the administration made a three-year commitment through recruiting and merit scholarships to strengthen the incoming student body in the ninth and tenth grades. Let’s say they had about 100 boys in a class. And they added about 15 of these merit scholarship boys, and hence were able to drop the 15 boys who were the lowest performers.

Just this relatively small shift showed amazing results. The rising tide raised all boats, as it were. It wasn’t cool to be a goof-off anymore. The classroom discussions were at a higher plane. The teachers had to raise their teaching level and raise their games. The dorms were much more constructive. On the playing fields many more boys were vying for leadership positions. In a very short period of time, two or three years, the character of the school was changed by sweetening the talent mix, if you will.

I was thinking more of how on the one hand we are still schooling students to go to work in a factory and tighten one bolt all day long and that that isn’t any where near the current work reality. It’s a web world. It’s a virtual world. You told a story about the woman in the bank, and it seemed to me the key word was getting the managers “connected” with everybody, you know, their reports and then their reports’ reports. Culturally these kids are a lot different than you and I were growing up, particularly how they relate to other people. And it seems that what the workforce needs is people who can operate virtually. Workers who are going to have very significant work relationships with people they may well never meet.

EM: Connectivity, feeling a part of something important and a part of something bigger than them actually is quite important, and then the connectivity in the sense of, “Somebody out there cares about me.” That’s a real concern for people coming into the work force today.

In summary?

EM: It all starts with the fundamental belief that, “Having a better talent pool is how I’m going to achieve my goals,” be that a profit or a non-profit organization. “Having a stronger talent pool is how I’m going to achieve my goals and be successful.” And if I believe that, then it’s got to be one of the two or three most important things that I do.

Hence strengthening that talent pool is a fundamental core part of my job every day. If people get that mind set, a lot of these other issues that we’re raising, they will figure them out on their own.

In the book we’re writing, The War for Talent, we talk about six imperatives for winning the talent war, but it all starts with the mind set that, “It’s very important for me to achieve my goals to strengthen my talent pool.”