Chasing Stars (Book Summary)

Chasing Stars: The Myth of Talent and the Portability of Performance by Boris Groysberg

Overall Summary

If you are a high performer, it is generally better to stay put.  However, if one does move to a new job, do the following to maintain and possibly increase performance:

• Move with your team
• Move to firms with developmental cultures – those that invest significant funding and effort over a considerable period of time in systematic training and mentoring. In particular, seek firms that orchestrate concrete, individualized development plans with support from/access to senior leaders.
• Move to better, more resource rich firms
• Cultivate strong external relationships
• Think deeply about the repercussions of moving; do not assume that you alone, and not your firm’s capabilities and resources, are solely responsible for your current performance
• Ensure the new firm is a strong culture-fit for your personality and a strong system-fit for your working style.
• Seek to win new colleagues over one at a time
• Seek firms with low turnover
• Moves to support a new firm’s existing capabilities are more successful than those to create new capabilities
• You are more likely to be successful running the play you already know (ex: cost-cutting vs. growth vs. managing cyclical markets)
• Stay within your industry

Introduction

• Reliance on stars is a highly speculative managerial policy because we don’t really know very much about what drives outstanding individual performance.
• Investment banks’ research departments turned out to be a near ideal real-world laboratory for assessing the portability of talent.
• Exceptional performance is far less portable than is widely believed. Mobile stars experienced an immediate degradation in performance. Even after five years at a new firm, star analysts who changed employers underperformed comparable star analysts who stayed put.
• “Can you take it with you?” turns out to be an insufficiently nuanced question; more productive formulations might be “Under what conditions can you take it with you?”
• Figure I.1: A conceptual overview of the contents of parts 1 and 2.

• Those who moved in teams did not suffer a performance decline, suggesting that team-specific skills have a marked effect on performance.
• The four stages of a successful team move, which our findings suggest must be meticulously managed:
  • Courtship
  • Leadership integration
  • Operational integration
  • Cultural integration
• We found that firms with what we call developmental cultures were far more successful than other firms at producing and retaining stars.

Part One | Talent and Portability

1 | Moving On

• Talented workers can only be a source of sustained competitive advantage if their talents are imperfectly mobile.
• Personality and temperamental attributes, such as energy, persistence, and a low anxiety threshold, have also been shown to contribute to high achievement.
• Superior pattern-recognition ability has been shown to account for expert performance in a variety of domains.
• Human-capital theory, therefore, posits that work performance is driven by education and experience in addition to intelligence.
• Companies that embrace the view of knowledge workers as free agents with thoroughly portable skills tend to give short shrift to training and to deemphasize company-specific skills.

2 | Analysts’ Labor Market

(no highlights for this chapter)

3 | The Limits of Portability

• Overall, star performance declined, sharply and for a prolonged period of time, following a move. As we will see, however, there is no simple answer to the question “Are stars portable? “A better question would be “Which stars are portable under which circumstances — and why?”
• The main explanatory mechanism proposed by human-capital theory is job tenure: more on-the-job experience increases the firm-specificity of workers’ skills, which in turn increases productivity. Empirical studies have found close links between tenure and performance.
• Researchers have also found that job-specific investment (on the part of both employees and employers) increases dramatically with job tenure, seniority, and rank.
• “Measurement and goals help you see whether you’re going in the right direction, whether you’ve arrived or whether you’ve missed by a country mile.”
• Our findings reveal that star equity analysts who switched employers paid a high price for jumping ship relative to comparable stars who stayed put: overall, their job performance plunged sharply and continued to suffer for at least five years after moving to a new firm. This evidence refutes the prevailing belief in the industry that analysts’ skills are thoroughly portable — independent of the particular firm where they work — and that analysts can move without suffering a decline in performance.
• What they left behind, in short, were the capabilities of the old firm and the practiced, seamless fit between their own skills and the resources of the company.
• Once stars began job-hopping, they tended to keep moving on to the highest bidder instead of allowing their new employer to build businesses around them.
• Equally revealing, however, are the variations we found in portability: whose performance proved to be portable and whose did not.
• We also found compelling evidence that a firm’s quality had a strong effect on an analyst’s performance. In fact, the effect on individual performance of firm-quality variables — the overall quality of the department, of the analyst’s colleagues, of the portfolio strategist, and of the firm’s salespeople — was strong.
• We found consistent evidence that the quality of an analyst’s new firm relative to that of his or her former firm was an important factor in post-move performance.
• Stars who moved to better firms had the most to gain by moving. These analysts experienced no significant decline in either short-term or long-term performance compared to that of star analysts who stayed.
• Analysts who left resource-rich firms for weaker firms had the most to lose. They experienced the sharpest declines in performance of the configurations we identified.
• Moving with an intact team enabled a star to retain some firm-specific human capital even after moving, with performance-protective effects.
• The star women in our study turned out to enjoy far more portable performance than did their male counterparts.
• We found that female analysts deliberately and strategically cultivated portable (i.e., external) relationships, resources, and sources of information, and also thought more strategically about the repercussions of moving than did their male counterparts.
• Individuals who are stars in the workplace have a strong and persistent — and potentially career-damaging — tendency to undervalue the importance to their success of their employers’ capabilities and resources — and their own practiced ability to make use of these resources.

4 | Do Firms Benefit from Hiring Stars?

• Our evidence, however, shows that building capability by hiring stars does not work well.
• Departing star analysts tended to quit their jobs at a point in time when their firms of origin were underperforming the market and to join firms that were also underperforming, but to a less extreme degree.
• The arrival of a new star from outside the company tends to have harmful effects on the performance and morale of others in the department.
• Junior analysts are likely to interpret the star’s hiring as a strong signal about the company’s lack of interest in developing their potential.
• Generally speaking, a firm should contemplate hiring a star only to fulfill a specific operational aim: to raise standards or introduce fresh ways of doing business or to fill a critical slot when there is no time to train anyone internally.

Part Two | Facets of Portability

5 | Stars and Their Galaxies

• In our survey of firms that excel at instilling firm-specific human capital, we identified three types of non-portability: soft, hard, and product-based.
  • By soft nonportability, we mean all unique aspects of firm culture and all human-resources practices that affect an employee’s work life: recruitment, training, evaluation, motivation, culture, and collaboration.
  • Hard nonportability flows from mastery of a firm’s computerized information systems and idiosyncratic platforms, along with the data and capabilities contained in those systems.
  • Product-based non-portability is embodied in skills learned to produce goods and services that no other firm sells.
• First-person singular is only used to describe a mistake, not an accomplishment.
• Two practices in particular embodied Goldman’s commitment to collaboration (and thus to “soft “forms of nonportable, firm-specific human capital).
  • First, informal policy specified that the firm and its constituent departments be managed not by a lone chieftain but by “co-heads.” Unique on Wall Street, the co-head strategy took advantage of co-leaders’ complementary skill sets and also made for smooth transitions. If one co-head left the firm or received a promotion, the other — already well versed in running the department — would maintain continuity.
  • Goldman’s second noteworthy practice was its emphasis on a close connection between analysts and the firm’s institutional sales force and its traders.
• Bernstein’s astonishingly low rate of exits speaks for itself, however, as to the power of product-based nonportability.)
• Firms must work long and hard to create nonportable human capital, but they can lose it swiftly and with remarkable ease.
• “I want to hear ‘we,’ and I want to hear other people’s names.
• Star analysts stayed at Lehman despite less-than-prevailing compensation to be a part of a department headed by a charismatic leader — a phenomenon known in the department as “the Jack Rivkin discount.”
• To remain viable, firm-specific human capital must maintain alignment not just with other departmental and division functions but also with complementary functions across the entire firm.
• “The secret to building a successful organization that can last over time is the talent bench.”
• The dynamic, in other words, is asymmetric: commitment to acquiring firm-specific human capital matures slowly; reversion to the norm — to investing only in general human capital — occurs at the first sign of trouble.
• Fundamentally, portability depends on whether any other firm has an equivalent model. No other firms produced research reports the same way that analysts did at Sanford C. Bernstein. No other firm had Merrill Lynch’s systems. No other firm had Goldman’s teamwork and collaboration culture. And how people are managed and developed reinforces these idiosyncratic products, processes, structures, systems, and cultures.

6 | Integrating Stars

• Mobile analysts’ post-move success depended, however, not only on the firm that they left but also on the firm they joined.
• The companies that assimilated stars most successfully were those that had thought deeply about both hiring and assimilation and had drawn up systematic plans to guide both processes. These companies took the time and effort to analyze and anatomize their own cultures and to pinpoint the desirable attributes of the stars they had developed in-house. They then set about very deliberately to replicate those attributes by seeking out stars with the same qualities from firms with similar cultures.
• “The challenge was trying to ensure that they fit culturally, intellectually, and analytically within a Goldman Sachs framework.”
• Because integration of a newcomer involves managing the reactions and interpretations of veteran employees as much as it does orienting the new employee, smart companies take pains to engage coworkers in the process in a proactive way.
• The best integrators made sure that newly hired stars did not destroy the department’s overall compensation strategy by becoming highly paid outliers.
• Our findings suggest that solo stars hired to explore suffer the biggest drop in performance; they experienced both a short-and a long-term decline in performance. In contrast, stars who moved with colleagues to explore suffered no decline in performance.
• The performance of an outstanding performer is not owned by the individual alone, but is a property of the individual-team-firm combination.
• Analysts who performed worst were those who were hired to explore. However, stars who moved with teammates into exploration roles suffered no performance decline.
• The firms that conducted the greatest due diligence on potential new hires and were strategic about integrating newcomers had the best rates of post-hire success.
• Star women who changed employers did not experience the decline that star men did.

7 | Liftouts (Taking Some of It with You)

• Teams move for the same reasons individuals move: higher pay, a better work environment, more interesting challenges.
• “Your loyalty is with the person who hired and trained you, “one junior analyst explained. “What exactly can my firm do for me that my boss can’t?”
• Though moving in groups is a performance protector for analysts, it is not a guarantee.
• Unless an entire unit moves together, some firm-and even team-specific human capital will inevitably be lost.
• When Kirsch realized that it would not be feasible to move his entire department (or even three hundred of them), “he whittled down the roster for his new staff using one character criterion: the desire to win.” This focus on individual excellence may have been too single-minded; bringing along a few less aggressive, more collaborative players might have helped the team’s chances.
• A liftout that crosses national boundaries is almost certain to carry with it a higher level of cultural disconnect and to require a steeper learning curve than other moves. The most successful transnational liftouts are those in which the team is hired for its regional expertise and — a key point — allowed to maintain its familiar business practices, as the County NatWest and BZW teams were not.

8 | Women and Portability

• Unlike their male counterparts, female stars 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.
  • Second, although they relied less on firm-specific capabilities and relationships, women were more careful when assessing a prospective employer.
• Female analysts, in their efforts to survive, were simply better and tougher as a group than their male counterparts.
• I think female stars on Wall Street tend to be much more marketing-intensive, much more externally intensive, much more relationship-intensive.
• One of the most valuable services that a mentor provides is access to the mentor’s own network of relationships.
• I told her to first win these people over before going and speaking with everyone else. You can’t win all salespeople at the same time. Several called me to find out more about her. ‘Is she that smart?’
• “Women many times don’t want to be mentored by a woman, because it’s not integrating them into the larger fabric of the organization, “she explained.
• Perhaps the ideal for an up-and-coming female analyst would be to have mentors of both sexes.
• An external orientation has the consequence, intended or not, of making performance maximally portable.
• Individuals’ decisions to move or stay put seem to operate independently of realistic assessments of their own portability.

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

9 | Star Formation Developmental cultures at Work

• Firms with what we call developmental cultures were far more successful at both producing and retaining stars.
• Firms with developmental cultures invest significant funding and effort over a considerable period of time in systematic training and mentoring.
• Firms with successful track records for turning analysts into stars were also better at keeping them: overall annual turnover of stars was 9.2 percent at the firms with developmental cultures and 12.9 percent at the other firms.
• It is striking that many of the developmental approaches we will look at turned out to share certain identifiable features. These shared characteristics were:
  • (1) individualized developmental agendas
  • (2) cross-fertilization via peer mentoring, mutual critiquing of work products, sharing best practices across analysts and sectors, and adopting varied developmental practices and processes rather than affiliating exclusively with one method
  • (3) the research director’s energetic involvement and support of in-house development
  • (4) ongoing, open-ended development of mid-career analysts as well as beginners
• The important thing was that the analysts’ style matched the sector they were in to be able to really meet the needs of people who were buying and selling the stocks that the analysts covered.
• Jack and Fred believed that you could develop a franchise in a number of different ways; there was no’ right’ way to do it.”
• Intense involvement from the research director was necessary in order to push developmental programs through the culture and keep the practices ongoing.
• The feature of Wall Street developmental cultures that was directly pertinent to stars’ performance was the conviction, embodied in practice, that training and mentorship are appropriate for experienced practitioners as well as beginners.
• In a developmental culture, by extension, the same individual could be both a recipient and a provider of suggestions, guidance, and feedback.
• Neither a first-rate education nor experience in the industry they cover guarantees that analysts know what they are doing at the beginning of their careers.
• But some juniors were trained merely to become proficient juniors. Self-protectiveness on the part of senior analysts could discourage openhanded mentorship of juniors. “The last thing you want to do is give somebody all your earnings models,” said Helane Becker. “And they go across the street and they become the airline analyst or the energy analyst or whatever with your model.”
• Research directors who were serious about talent development could and did encourage senior analysts to function as full-fledged mentors for their juniors, both by promoting institution building as a value and by making substantive mentoring of juniors a criterion for assessing seniors’ performance and for determining their compensation.
• Developmental firms valued mentoring as a contribution to the collaborative enterprise of building a strong department and found ways to explicitly encourage it.  Some firms codified their support by making mentoring a criterion for measuring analysts’ performance.
• The [training] topics covered were of immediate practical value and were presented by fellow analysts; there were no external speakers. Participation was treated as a privilege, and teamwork and camaraderie were encouraged.
• It was a fundamental principle of Bernstein’s culture that when a beginning analyst identified a senior analyst he or she would like to work with, the senior analyst could not say no.
• Statistical work that can demonstrate leading or coincident indicators is analyst nirvana.
• In all cases, aim the product at the PM, with the ability to talk to the analyst contact as well (it is easier for Bergdorf to put products on sale than it is for K-Mart to price products up).
• The best new idea is often an old idea that hasn’t worked
• You don’t get full credit for good ideas if you only highlight them once
• One of the most important aspects of success for the whole research department is low turnover.

10 | Turnover Who Leaves and Why

• Researchers have estimated the cost of losing a seasoned professional as 75 – 150 percent of that person’s annual salary.
• The most arresting of our findings about turnover is that star research analysts were only half as likely as non-stars to change employers.
• We examined individual performance, length of tenure, and the role of gender. We also looked at departmental performance, strength, size, and leadership tenure. At the firm level, we examined firm performance and governance structure. We also considered the number of analysts in a given sector and sector performance, and the performance of the investment-banking industry as a whole. In an effort to pin down the effect on turnover of access to high-quality colleagues, we looked at the quality of colleagues at the team, department, and firm levels.
• We found that star analysts were more likely than their non-star colleagues to remain at their firms.
• We found experience or tenure at a given firm to be negatively associated with turnover.
• Women’s turnover was higher than men’s.
• High-performing departments tended to experience lower turnover. But departmental performance had a decreasing marginal effect on turnover: beyond a certain point, further improvement in a department’s performance did not affect its turnover rate.
• Departmental performance had a particularly strong effect on retention of high performers.
• The relationship between departmental size and probability of exit was nonlinear: the smallest and largest departments both experienced relatively low turnover.
• We found that for each additional year of a research director’s tenure, the probability of turnover declined.
• We found that firm performance has a negative but insignificant effect on overall turnover.
• We found that analysts employed by investment banks that were private were less likely to leave than those at public investment banks.
• We found that a higher-quality sales force significantly reduced analyst turnover.
• Turnover did not increase with sector size [the number of investment banks that cover an industry].
• Turnover among ranked analysts in a given sector did not correlate with sectoral performance or with the rate of increase in the number of analysts covering it.
• New stardom increased the probability of turnover to competitors by 7.5 percent at the mean.
• Unlike turnover to competitors, exits from the profession were not positively associated with department size, department strength, leader tenure, firm governance structure, firm performance, or sector size.

11 | A Special Case of Turnover Stars as Entrepreneurs

• A colloquial way of describing the most basic roles in professional services is the “minder-finder-grinder” distinction:
  • the minder handles the administrative end
  • the finder drums up business
  • the grinder produces the work.
• We can do a very rough comparison by looking at the three-year survival rate of analysts’ new businesses in the light of the probability of remaining a star for three years. The probability of remaining ranked (at any rank) for three years was 80.5 percent for ranked analysts who did not change firms and 65.9 percent for ranked analysts who left to join competitors. By contrast, the rate of three-year survival for ranked analysts’ entrepreneurial ventures was 57 percent.
• Clients expected star performance from stars’ new ventures, and those who were quick to follow trusted analysts to their new firms may have been even quicker to leave the new venture at the first signs of underperformance.
• A good analyst is not necessarily a good stock picker. Analysts who enjoyed longstanding relationships with people at the firms they followed might assess those firms more positively than was merited.
• More surprising is the actual rate of three-year survival for ranked analysts’ entrepreneurial ventures: 57 percent (as compared to 29 percent for unranked analysts).

12 | Measuring and Rewarding Stars’ Performance

• The industry rankings of sell-side analysts’ activities frequently placed stock picking outside the top ten activities valued by their clients.
• “We manage toward one and only one metric,” said a research director who focused exclusively on client impact. “If you try to get really dedicated professionals to aim toward five disparate targets at the same time, they’ll probably miss them all.”
• Nonportability firms like Schroder Wertheim, Sanford C. Bernstein, Bear Stearns, and Lehman Brothers used such internal criteria as whether an analyst participated in institution-building activities like hiring, mentoring, or leading a team.
• The Wall Street Journal reported in 1991 that three factors largely determined analysts’ pay: the II rankings, the results of the sales-force survey, and job offers from competitors.

13 | Lessons from Wall Street and Elsewhere

• We found that exceptional performance was more context-dependent than is explicitly recognized by star performers or their employers.
• The relative quality of the two firms matters. Stars who moved to superior firms experienced no decline in short-or long-term performance relative to their counterparts who stayed put. Those who moved to weaker (less resource-rich) firms experienced the sharpest declines in performance.
• The orientation of the employee’s firm of origin matters. Stars who left portability-oriented firms that promoted general human capital performed just as well after moving as stars who stayed put. Those who departed from nonportability-oriented firms that offered their analysts customized resources, idiosyncratic processes, firm-specific training, unique culture, opportunities to work on special products, and encouragement to collaborate with colleagues saw their performance decline after moving.
• The function an analyst is hired to perform matters. Stars hired to support existing capabilities (exploitation) performed far better than those hired to initiate coverage of a new sector (exploration).
• Leaving solo or with a team matters. Analysts who changed employers along with teammates suffered no significant decline in short-or long-term performance relative to comparable star analysts who did not move. Those who moved solo performed less well.
• Gender matters. Women’s post-move performance surpassed men’s.
• it is time to move on from debate about whether performance is portable to more fine-grained examination of under what circumstances performance is portable,
• Strategic human capital takes the form of expertise at cost-cutting, growth, or managing cyclical markets; a given executive is highly likely to have accumulated more experience in one of these contexts than in the other two.
• Companies whose strategic need matched the strategic experience of the former GE executive enjoyed annualized abnormal returns of 14.1 percent, while mismatched pairings saw returns of-39.8 percent.
• When former GE executives moved within the same or a related industry, their new companies generated annualized abnormal returns of 8.8 percent; those who moved into a dissimilar industry saw abnormal returns of – 29.1 percent.
• Companies that hired three or more former other GE executives enjoyed annualized abnormal returns of 15.7 percent, while those that hired a single executive (or only one or two subordinates) had annualized abnormal returns of-16.6 percent.
• We found that the former GE executives who took over, built, or implemented management systems that resembled GE’s were more successful than those who entered firms with less familiar systems and did not impose changes.
• Because women’s portability appears to stem from their minority and marginalized status in the industry, it could also be productive to examine whether members of other minority groups — by virtue of race, age, or educational or career factors — have strategically protected their portability in similar ways.
• Our interviews suggest that the degree to which a given individual relies on firm-specific human capital is unclear not only to others but also in many cases to the individual in question, who may never have considered the question. An analyst who changes firms, obviously, learns certain lessons about his or her portability.
• A star analyst who is contemplating moving to another firm is likely to observe the outcomes of other analysts’ moves. Individuals often use others’ actions and their consequences as a metric by which to measure their own general and firm-specific human capital.
• People don’t flourish in environments that are uncomfortable for them.
• Using firm-specific, nonportable human capital as a strategic advantage is not something that successful companies can do in a halfhearted way.
• Building up a firm’s specific human capital takes a long time, and maintaining it requires constant reinforcement.
• The consistency of these findings about the primacy of context, particularly institutional quality, in top individual performance is the key argument for competitive knowledge-based organizations to build resource-rich environments that will retain the loyalty and performance of their most talented employees.
• People are surprisingly bad at predicting how they will respond to a situation emotionally, which leads them to make decisions based on erroneous beliefs about what will or will not make them happy.
• When imagining the future, people are likely to concentrate only on their own behavior and its immediate consequences and to ignore the role of chance, random situational variables, or the actions of others:
• Our evidence strongly suggests the wisdom of hiring from firms with similar orientations and of hiring from firms of lesser or equivalent quality.
• Hiring from organizations far more resource-rich than one’s own increases the likelihood that the incoming star will suffer a performance decline and prove to be a disappointment.
• Firms have a clear self-interest in retaining their best and brightest employees. Retention in turn appears to be a function of organizational factors like first-rate colleagues, suggesting that talent tends to attract and keep other talent in a self-reinforcing manner. We found consistently lower turnover at firms that provide higher-quality (better-performing) colleagues.
• The job-change mistakes most frequently identified by recruiters were:
  • (1) doing inadequate research
  • (2) being swayed excessively by money
  • (3) moving “from “rather than “to”
  • (4) overestimating oneself
  • (5) thinking short term
• Job seekers get consumed by compensation and not by fit, so they keep moving, mistaking compensation for recognition, personal satisfaction, et cetera, “one recruiter pointed out. “They don’t take any time for introspection to understand why they are unhappy where they are.”
• “People fail to be realistic sometimes [and] to be self-critical, and [they therefore think] that external circumstances and environments have more to do with their frustrations or failures than their own issues.”
• Our finding that stars move to competitors less frequently than do non-stars (though they probably receive more overtures) suggests that those who have a record of performance to protect may be more cautious, at least in this respect, than those who are still on the ascent and possibly impatient to prove themselves.
• For ambitious professionals it clearly makes sense to affiliate with, and stick with, the highest-quality organizations.
• Those who moved from lesser firms to superior firms were able to maintain their performance without penalty, while those who left the best firms suffered the greatest declines.