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War for Talent

 
10/29/2001
In their book, The War for Talent, Ed Michaels, Helen Handfield-Jones, and Beth Axelrod predict that the crucial force that will make or break firms in the next two decades will be their ability to attract, develop, and retain managers at all levels. Investment in intellectual capital will permeate all functions and levels of successful organizations. In this excerpt, learn how leaders and managers embrace a talent mindset and make it essential to the corporate strategy of the firm.

Pulling the Talent Lever

Les Wexner is an extraordinarily talented and multifaceted man. He is a merchant, a lover of history, a philanthropist, and a devoted family man. Above all, however, he is an entrepreneur.

In 1963, after helping his parents run their store in a suburban Columbus, Ohio, shopping center, he started The Limited—so named because the store focused on clothing for younger women, unlike his parents' general merchandise store. Over the next twenty-five years he built a retailing and marketing marvel, which included The Limited, Express, Victoria's Secret, and Bath and Body Works. By 1990 he had 3,800 stores and $5 billion in sales; his company was named by Fortune as one of the "New Champs of Retailing."

In the early 1990s, however, The Limited's earnings hit a wall and its stock plunged. Wexner was working harder than ever, but something was desperately wrong. He "went to war with himself" and decided to take counsel from several people he respected. He visited Steven Spielberg on the set of Jurassic Park to see how the famous director got his creative people to work together so well. He also visited GE's Jack Welch and Wayne Callaway, then the CEO of PepsiCo, to determine how they ran their businesses so well.

Quotation
Once a manager believes that talent is his or her responsibility, the other imperatives seem the logical and natural thing to do.
Quotation
— Michaels, Hanfield-Jones, & Axelrod

"I asked them how often they checked sales," Wexner recalls. "They said, 'Once or twice a month.' I checked ours twice a day. I asked them how much time they spent reviewing new ads. They said, 'Almost no time.' I asked them how much time they spent on new product concepts. They said, 'Occasionally—but only on a really big new product concept with a large capital expenditure.' I was spending half my time on products and ads."

Wexner was amazed. Finally he said, "Well, what do you do?" Separately, each of the men explained that they spent about half their time on people: recruiting new talent, picking the right people for particular positions, grooming young stars, developing global managers, dealing with underperformers, and reviewing the entire talent pool. Welch said to Wexner, "Having the most talented people in each of our businesses is the most important thing. If we don't, we lose."

By the time he had finished meeting with Spielberg, Welch, and Callaway, Wexner had figured it out. He realized that the common element in all three success stories was talent management—how well these successful leaders had recruited, developed, and retained talented people. It was talent that made these companies great, Wexner saw, and it was talent that made them perform beyond their peers.

"It really was an epiphany," he says. "I discovered a completely different way of running a business."

When he returned home, Wexner immediately set his new talent mindset to work. First, he asked his HR managers for a list of The Limited's 100 most successful people. They didn't have one. Even after a list was created, Wexner realized he didn't know half the people on it well enough to assess them. "When I finished assessing them, I felt sick," he recalls. "I realized that my people weren't nearly as strong as they needed to be. I had hired other merchants like myself. We needed general managers, and we didn't have any."

Second, Wexner hired Len Schlesinger, a Harvard Business School organization professor, as a consultant and confidant (later he became COO and Executive Vice President of The Limited's Organization, Leadership, and Human Resources functions). They put together a talent review process that reviewed each division's talent strategies and the performance of the top 50 people in each division. Wexner not only attended all the meetings, he co-chaired them.

Third, Wexner began to pump new talent into the organization. He hired world-class general managers from Estée Lauder, Banana Republic, J. Crew, and The Gap. He also hired functional managers in finance, logistics, store operations, and information technology from Pillsbury, PepsiCo, and BellSouth. The newcomers brought deep experience and fresh perspectives—and with them came a new recognition of what outstanding talent looks like. They built their teams. Talented insiders got promoted and weak insiders were moved aside. Over those crucial three years, more than half of the people in the top 250 positions were changed. One-third of the replacements came from the outside and two-thirds came from the inside.

Within three years, the company's performance had improved dramatically. Profits had grown from $285 million to $445 million, and the company's stock price had almost doubled. To be sure, talent was not the only lever Wexner pulled. The portfolio was reshaped. Several divisions were closed, several were purchased, and several were spun off. Most notably, Victoria's Secret and Bath and Body Works were combined to create Intimate Brands, Inc. The merchandising process was fundamentally redesigned and the growth planning process was successfully installed. But, Wexner says, "Talent was the most important thing. Without better talent, most of the other actions would not have happened successfully."

Looking back on how his approach to managing the company had changed, Wexner declared, "I used to pick sweaters; now I pick people."

It All Starts with a Talent Mindset
What Les Wexner learned was the most important lesson that we have learned in five years of discussions with hundreds of companies. Building a better talent pool is not about building a better HR department. It's not about better training. It's not about extending the annual succession planning meeting from one to two days. It's not about offering more stock options. It is about leaders and managers at all levels embracing a talent mindset.

Of the many prescriptions in this book, embracing a talent mindset is the most important. It is the starting point. Once a manager believes that talent is his or her responsibility, the other imperatives seem the logical and natural thing to do.

A talent mindset is the deep-seated belief that having better talent at all levels is how you outperform your competitors. It's the belief that better talent is a critical source of competitive advantage. It's recognition that it is better talent that pulls all the other performance levers. Indeed, a talent mindset is the catalyst that activates the other talent-building imperatives.

Leaders with a talent mindset make talent management a huge and crucial part of their job. They understand it can't be delegated, so they commit a major part of their time and energy to strengthening their talent pool and helping others in the company strengthen theirs. Finally, leaders with a talent mindset have the passion, courage, and determination to take the bold actions necessary to strengthen their talent pools.

Old Mindset About People New Talent Mindset
A vague notion that "people are our most important asset" A deep conviction that better talent leads to better corporate performance
HR is responsible for people management All managers are accountable for strengthening their talent pool
We have a two-day succesion planning exercise once a year Talent management is a central part of how we run the company
I work with the people I inherit I take bold actions to build the talent pool I need

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Excerpt from The War for Talent, (c) 2001 McKinsey & Company, Inc. All Rights Reserved. (Published by Harvard Business School Press.)

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Ed Michaels is a recently retired director of McKinsey & Company in Atlanta.

Helen Hanfield-Jones is a senior practice expert with McKinsey & Company in Toronto.

Beth Axelrod is a principal of McKinsey & Company in Stamford, Connecticut.