A Company of Stars

Boris Groysberg is a Harvard Business School professor, author, and management consultant known for putting numbers on things formerly considered soft, like culture and management performance. Ensto Today spoke with Professor Groysberg at an Ensto management seminar in May 2015.

The case studies you shared with Ensto, General Electric and Google, placed a heavy emphasis on speed in every aspect of business. Laws and culture differ around the world, and change can’t always be made as fast in one place as another. Would you comment on that aspect of change?

First, keep in mind those cases were selected because GE and Google were in particular situations and focused on general managers. But regardless of regional differences, best practices still apply.

There’s no argument that if you look at speed of change, it’s dramatically different now than 10 or 20 years ago. We’re in a global economy now. If in a global economy there are companies in one region moving at a different speed than others, then it creates a comparative advantage for one.

Labor laws and legal issues we have to keep in mind, of course. It might be easier in the US to manage out underperformance. You have to manage performance, which means rewarding the best people. No longer do companies have the luxury on the balance sheet to carry underperformers for decades. I think there are still companies where people put in different efforts but get the same reward. But this is changing in the global economy.

In your book, Chasing Stars: The Myth of Talent and the Portability of Performance, you write about “workers who are increasingly far more committed to an occupation than to an employer.” But in the Nordic cultures, it seems employees already matter more – employers and employees value each other more, there is more of a team culture. If this is, in fact, true of Nordic companies, is it an advantage in the global marketplace?

Individual performance is an outcome of many different cultures. Our research suggests that the more of a “we” culture you have, the less portable you are, because you depend on other people. The issue of whether talent is portable and whether you can hire from outside and expect them to exhibit high performance is a big question mark.

If what you say is true [that Nordic companies are by reasons of culture more team oriented] then this trend of Finnish companies hiring more from outside becomes a problematic solution. We should spend more time developing people from inside companies. If you believe in unique cultures (and, by the way, I think Ensto has a unique culture) then developing from within becomes a lot more important. People hired from outside in unique cultures might experience organ rejection. I think there is no substitute for developing the best and brightest, whether speaking about this company or overall.

You discuss two approaches: Nature and Nurture. Nature means hiring in volume so stars will rise, and hiring stars away from other firms. Nurture means constant training, mentoring, fostering loyalty, a long-term perspective. Is the Nurture approach particularly difficult for public companies that must deliver results each quarter? Do family firms like Ensto have an advantage here?

First, it’s important to note that Nature matters. People have to have a positive IQ and without that nurturing does not help. But when we talk about stars it should be pointed out that there are quite a lot of people with talent who are able to accomplish nothing. Maybe they wasted their talent, or an organization did not leverage their talent.

The bottom line from our research is that stardom is a partnership between you and your employer. The employee has to bring some ambition and smarts to the table, but it’s a partnership. If you’re a team-oriented “we” who works for a team-oriented company, that produces a better outcome than if you’re an “I” working for a “we.” The proper match is a multiplier of talent. It’s possible that you can be working for a company that has a negative impact on your performance.

Is it easier to focus on nurturing and developing in companies that have a long-term orientation? I think the answer is yes. Are there fewer companies with long-term orientations that are publicly traded? The answer is also yes. It’s actually really hard nowadays with investors that focus short term.

Look at how institutional investors turn over their portfolios versus 20 or 30 years ago. Look at investor activism, at hedge funds. It’s really hard for a company to have a long-term perspective. And development strategy is about long-term yield.

With many of our businesses it’s an apprenticeship model. You work with a person and observe what he or she does. There is no book on how to become a great salesman, for example. It’s an apprenticeship model, and this takes time. Formal training is a small part of overall development. On-the-job and mentoring are the two biggest pieces. In a partnership or privately owned company it’s easier to say, “We are building performance over the next decade, not over the next quarter.”

Speaking of team-oriented cultures, in Chasing Stars you quote someone with Goldman Sachs who talks about “pronoun education,” noting that first-person singular is only used to describe a mistake, not an accomplishment. Accomplishments are expressed as “we.” That’s encouraging, yet at the same time you noted there are many companies with the opposite culture.

My research was mostly conducted when Goldman Sachs was a partnership. It went public in 1999, and it’s a different company today. To clarify: I think we need to look at “we” versus “I” cultures by industry. Is Goldman Sachs a “we” in investment banking? Yes. Is it a “we” versus all other companies? Probably not. You’ve got to look at the peer set. But, to be honest, many companies are “I” cultures.

There is a cross industry trend to build stronger company cultures, and you see more companies moving to becoming “we” – as opposed to just an assembly of free agents. I think if you become global you have to be more consistent. There is pressure to share best practices, to seamlessly execute across time zones and regions, which is easier to do in a “we” culture. “We” cultures have lower turnover, higher customer retention rates. There are many benefits.

But there are negative attributes, as well. “We” cultures sometimes behave like clubs and a dynamic industry can kill them. I think there are probably more benefits to a “we” culture than there are negatives, and this is what CEOs are seeing. A number of companies are now saying that their business units do not own talent, that the top 50 or 100 people are corporate assets and we invest in them as such – because if a business unit can own them they won’t share them with anyone else.

Changing a culture isn’t easy and it’s a decade transformation. I always tell CEOs that if you want to change the culture, I assume you’ll be gone before you see it transformed. Someone else will finish your work.

Even though people realize high-values, high-performance, strong cultures are important, it’s harder to do in publicly-traded company cultures, because the tenure of the CEO is so limited. The CEOs won’t be there to see it if they don’t perform at the same time they’re building the culture.

That’s why I think partnerships and privately owned companies might potentially have a stronger effect in some industries, because they can take a long-term view, not only in developing the people but developing the cultures.

You’ve written that “a company that offers its valued employees a convincing counterargument to the prevailing superficial and formulaic thinking about portability stands to gain a great deal.” Are there some great examples of this we can learn from? A company that has communicated its values well?

It could be any other value – it doesn’t have to be the “we” culture. You have to offer the value and then to communicate it. The Employee Value Proposition, also called internal marketing, was popular a couple of decades ago, but over time these resources have gone into customer value propositions.

We spend a great deal of time communicating our values to our customers. I think we don’t do as good of a job of actually communicating our values to our employees. When CEOs of companies complain that they’re actually managing free agents or butterflies – people who jump from one company to another – I always ask CEOs if the best people who work for them actually know how much value they create.

Because it’s not enough to create value. You have to communicate it, as well. Goldman Sachs, Google, GE, McKinsey all do it. My employer, Harvard Business School, does it well.

The more successful you are the more likely it is that you believe you control your own destiny. So just as we communicate value to customers, I think the next trend is to communicate your value to your employees and your best and brightest or they’ll go somewhere else. Don’t assume they get it, because most of them will not.

Author: Scott Diel