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Chasing Stars

Chasing Stars: The Myth of Talent and the Portability of Performance

Copyright Date: 2010
Pages: 464
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  • Book Info
    Chasing Stars
    Book Description:

    It is taken for granted in the knowledge economy that companies must employ the most talented performers to compete and succeed. Many firms try to buy stars by luring them away from competitors. But Boris Groysberg shows what an uncertain and disastrous practice this can be.

    After examining the careers of more than a thousand star analysts at Wall Street investment banks, and conducting more than two hundred frank interviews, Groysberg comes to a striking conclusion: star analysts who change firms suffer an immediate and lasting decline in performance. Their earlier excellence appears to have depended heavily on their former firms' general and proprietary resources, organizational cultures, networks, and colleagues. There are a few exceptions, such as stars who move with their teams and stars who switch to better firms. Female stars also perform better after changing jobs than their male counterparts do. But most stars who switch firms turn out to be meteors, quickly losing luster in their new settings.

    Groysberg also explores how some Wall Street research departments are successfully growing, retaining, and deploying their own stars. Finally, the book examines how its findings apply to many other occupations, from general managers to football players.

    Chasing Starsoffers profound insights into the fundamental nature of outstanding performance. It also offers practical guidance to individuals on how to manage their careers strategically, and to companies on how to identify, develop, and keep talent.

    eISBN: 978-1-4008-3438-9
    Subjects: Management & Organizational Behavior, Business, Sociology

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Acknowledgments
    (pp. ix-2)
  4. Introduction
    (pp. 3-12)

    Many knowledge-based firms view their employees as their most valuable resource. At such companies, where it is virtually an article of faith settling for “B” players is a recipe for mediocrity, managers work hard to attract the best and the brightest. When companies do find first-rate talent, they’re often willing to offer those stars huge salaries, signing bonuses, options—in short, whatever it takes. The value of stars is a powerful idea, one that numerous books and management gurus have popularized over the past decade by invoking a so-called war for talent. This assumption the cornerstone of many companies’ people-management...

  5. Part One Talent and Portability

    • 1 Moving On
      (pp. 15-34)

      In 1994, Josie Esquivel was in her seventh year at Lehman Brothers.¹ Though barely forty, Esquivel was a legend on Wall Street: having arrived at Lehman in 1987 with almost no experience, she had been voted one of the best equity analysts in her industry a mere eighteen months later. And a few weeks earlier she had finally achieved the goal she had set for herself upon first arriving in New York: she had been named the number-one appareland-textiles analyst on Wall Street. Yet here she was, pondering a move to Morgan Stanley.

      “I never would have even considered such...

    • 2 Analysts’ Labor Market
      (pp. 35-50)

      An ordinarily level-headed veteran of Wall Street, asked to explain how a security analyst becomes a star, answered, “This is a little like asking what it was that made Rembrandt or Van Gogh great artists. If there’s an answer, it’s probably that the greats in any profession are driven by an inner fire, and are gifted with a special spark.”¹ This seasoned financial pro went on to describe an outstanding security analyst as “Diogenes with a lamp making rounds of New York, Boston, Detroit, Chicago, Los Angeles, and some tank towns in between.”² Another observer of the profession characterized a...

    • 3 The Limits of Portability
      (pp. 51-76)

      When an analyst changes employers, his or her education and innate abilities, general skills, and relationships with clients and outside contacts are readily portable to another employer.¹ But the supportive relationships and resources at the analyst’s former employer, which represent sources of performance-enhancing information and insight, are immediately lost. Figure 3.1 illustrates the nature of an equity analyst’s human capital by depicting Josie Esquivel’s professional relationships, resources, and skills at Lehman Brothers as multiple spokes on a wheel. Though specific to analysts, most of these relationships and resources have close analogues in other knowledge-based professions. For many professionals, for instance,...

    • 4 Do Firms Benefit from Hiring Stars?
      (pp. 77-90)

      Investment banks pursue two broad approaches to acquiring top performers.¹ Some firms make a practice of picking off highly rated employees from specific competitors. Others commit to nurturing and leveraging homegrown talent. (A certain number of these firms successfully cultivate their employees’ skills but are unable to hang onto them.)

      Many investment banks that make a practice of hiring outstanding analysts from other firms resemble the baseball and football teams that rely on free agents. Underperforming firms seek out stars in an attempt to quickly reverse their fortunes. Departments unable to develop stars internally, or disinclined to try because of...

  6. Part Two Facets of Portability

    • 5 Stars and Their Galaxies: Firms of origin and Portability
      (pp. 93-124)

      Firms appear to confer differing levels of portability on their workers.¹ Analysts who moved to new employers from certain investment banks actually performed quite well after making that transition. Analysts who left other firms suffered notable performance declines after their moves.

      Figure 5.1 shows the effect of moving on the performance of analysts who left one of the top investment banks for a brokerage of comparable quality. (The figure shows only such lateral moves, in order to screen out resource discrepancies between firms of origin and destination firms. Only firms which the statistical estimates were possible to calculate are reported.)...

    • 6 Integrating Stars: The Hiring Firm and Portability of Performance
      (pp. 125-140)

      In chapter 5 we saw that investment banks impart different degrees of firmspecific human capital, and therefore portability, to their analysts.¹ Mobile analysts’ post-move success depended, however, not only on the firm that they left but also on the firm they joined. It isn’t easy to assimilate a star. A handful of the investment banks we looked at excelled at selecting star analysts and integrating them into their cultures and practices. But many did not, and their new analysts’ performance deteriorated accordingly. Specifically, we found that most firms had hiring strategies of one sort another—some remarkably painstaking and rigorous,...

    • 7 Liftouts (Taking Some of It with You): Moving in Team
      (pp. 141-162)

      Among star analysts who changed employers between 1988 and 1996, those who moved in teams performed better than those who moved solo.¹ In fact, analysts who changed employers along with teammates suffered no significant decline in performance, in contrast to the decline of those who moved alone. (See table 7.1.) This finding suggests that team-specific human capital accounts for a significant portion of those analysts’ performance.²

      The effect on short-term performance of moving solo (0.061) was larger than that of changing firms with teammates (0.006). As figure 7.1 shows graphic form, the probability of ranking first in year t +...

    • 8 Women and Portability: Why Is Women’s Performance More Portable than Men’s?
      (pp. 163-194)

      One group of analysts reliably maintained their star rankings even after changing employers: women. Unlike their male counterparts, female who changed employers performed just as well as those who stayed put.

      In our interviews, we found two overarching explanations for women’s portability. First, the best female analysts appeared to have built their franchises on external relationships with clients and the companies they covered, rather than on relationships within their firms. By contrast, male stars built up more firm-and team-specific human capital, investing more in the internal networks and unique resources of the firms where they worked.¹ Hence, in the course...

  7. Part Three Implications for Talent Management:: Developing, Retaining, and Rewarding Stars

    • 9 Star Formation: Developmental cultures at Work
      (pp. 197-238)

      If portability of star-quality performance is more often a myth than a reality, it is crucial for knowledge-based firms to figure out how to cultivate and retain their own stars. On Wall Street it was uncommon to do so. Research departments rarely provided formal training or mentoring to supplement the traditional apprenticeship method (assigning a junior analyst to assist a senior analyst, who may or may not have seen fit to oversee the junior’s development). Even less common was a concerted internal effort to develop analysts into stars; the most popular means of acquiring star analysts was to lure them...

    • 10 Turnover: Who Leaves and Why
      (pp. 239-252)

      The effort a company makes to develop stars is, clearly, not a wise invesment if the stars then depart to shine in some other firm’s constellation.¹ What factors influence whether or not stars stay in their organization? Understanding the patterns and drivers of turnover among the best and brightest is crucial for knowledge-based firms, whose star employees constitute their primary strategic assets.

      Turnover is expensive. Researchers have estimated the cost of losing a seasoned professional as 75–150 percent of that person’s annual salary.² Turnover also imposes hardship on the departments that mobile employees leave. Positions may remain open for...

    • 11 A Special Case of Turnover: Stars as Entrepreneurs
      (pp. 253-272)

      Instances in which star analysts quit their jobs to become entrepreneurs represent a special case of turnover, an alternative to joining a competitor that offers intriguing insights into portability: in a departure for entrepreneurship, the individual has only his or her own human capital to rely on and no organizational resources to draw upon.¹ The allure of entrepreneurship is usually the prospect of creating a company in one’s own image. Accordingly, some star analysts expected it to be easier to succeed as an entrepreneur than at a new firm, which would require a period of adjustment to learn new corporate...

    • 12 Measuring and Rewarding Stars’ Performance
      (pp. 273-320)

      Institutional Investor’srankings were by no means the only rating of analysts’ skills. TheWall Street Journal, Reuters, Greenwich Associates, and several other firms regularly assessed analysts’ performance.¹ And both client firms and analysts’ own departments compiled data about analysts’ track records and activities. Much of this information sought to measure, in various ways prevailing opinions at client firms about the relative value of individual analysts’ output. Analysts themselves tended to prefer highly objective external measures because such measures kept them marketable outside their firms.

      How research directors used the vast amount of information available on analyst performance depended on...

    • 13 Lessons from Wall Street and Elsewhere
      (pp. 321-342)

      We began twelve chapters ago by asking what a systematic look at the career moves of a group of star knowledge workers could tell us about the concept of high-performing free agents with perceived portable talent, and about human-capital theory’s thesis that general human capital is portable from one employer to another while firm-specific human capital is not.

      Researchers look at portability for two reasons, one descriptive and one prescriptive. The descriptive goal is to use portability of performance as a way of examining the nature and sources of exceptional performance. The degree to which individual performance is portable and...

  8. Appendix
    (pp. 343-352)
  9. Notes
    (pp. 353-436)
  10. Index
    (pp. 437-446)