McKinsey’s Dirty War: Bogus ‘War for Talent’ Was Self-Serving (and Failed)

Even a stacked deck couldn’t produce winners

(Photo illustration by New York Observer.)
(Photo illustration by New York Observer.)

Remember The War for Talent? That was the name of a 1997 article and popular 2001 book written by the good people at McKinsey & Company, the publication of that set off a worldwide craze over a raft of flimsy “talent management” ideas. One of the most prominent: To win in business, companies had to promote their most “talented” people aggressively while culling their ranks of the least “talented” with similar urgency. What makes for a “talented” employee? Hell if I know. But I do know this: Like most wars, it was not only destructive but also wrong-headed. The War for Talent was a War on Common Sense.

I’m not the first to say so, of course. In a scathing July 2002 article, “The Talent Myth,” The New Yorker’s Malcolm Gladwell concluded that the McKinsey echo chamber had fooled itself into buying its own bullshit. Mr. Gladwell’s particular focus was Enron, which had been run by ex-McKinseyite and current federal prisoner Jeffrey Skilling. Mr. Skilling, you see, brought McKinsey’s own Darwinian “up-or-out” personnel processes to Enron. And in the years before the natural gas company’s remarkable turn-of-the-century success had been revealed as nothing more than accounting fraud, he had brazenly offered up the unsound managerial concept as one of its competitive secrets. The book, which had heaped praise on Mr. Skilling for doing as McKinsey did, was the literary equivalent of a snake eating its own tail.

In May 2001, even before Mr. Gladwell’s article, Stanford University professor Jeffrey Pfeffer published a paper, “Fighting the War for Talent Is Hazardous to Your Organization’s Health,” in which he made the point that the war overvalued individuals at the expense of the team with disastrous organizational results. Companies that engaged in it, he argued, “set up competitive, zero-sum dynamics that make internal learning and knowledge transfer difficult … and create an attitude of arrogance instead of an attitude of wisdom.” Considering what happened to Enron, he pretty much hit the bull’s-eye.

So why am I writing about it now, you ask? Because after I wrote about the above in my recently published book, The Firm: The Story of McKinsey and Its Secret Influence on American Business, I came across an interesting piece of research by Andrew Munro of AM Azure Consulting, a U.K.-based talent management outfit. His firm recently issued its own study, “What Happened to the War for Talent Exemplars?” that rendered a pointed verdict: “The talent management practices outlined in The War for Talent did not seem to improve competitive success. Indeed, [they] may have made business decline and failure more—not less—likely.”

As is their wont, the McKinsey consultants who wrote the original book, Ed Michaels, Helen Handfield-Jones and Beth Axelrod, had claimed to perform rigorous fact-based research to develop their theories, including interviewing 13,000 executives in more than 120 companies and producing 27 case studies of “leading” companies. The result were five “imperatives” employed by those leading institutions to obtain superior corporate achievement, a clear reference to the five “constant factors” Sun Tzu elucidated for generals’ deliberations in The Art of War. Let’s set aside for a second that those 27 companies were likely current or prospective clients of McKinsey. Or let’s not. Because, as Mr. Munro tells it, “Otherwise, it’s very difficult to explain how they came up with this particular sample of firms.”

Now where had I heard that before? Oh, right—the companies that served as the basis of another McKinsey book on best practices—In Search of Excellence—were also drawn largely from its client pool. Many of those “excellent” companies did not hold up well over time, either, prompting a cover story in Businessweek (“Who’s Excellent Now?”) that suggested that two-thirds of the 43 companies profiled within were no longer so excellent.

McKinsey consultants went all-in on the implicit promise of the book. They claimed that companies that scored in the top quintile of their “talent management index”—it’s got to be legit if there’s an index involved, right?—earned on average, [a] 22 percent higher return to shareholders than their industry peers.” And that’s not all. If you had the wisdom to adopt the five imperatives, they said, you could “expect huge impact in a year,” and if you don’t get it, “you are not being sufficiently aggressive.” They had fastened the triggers for the others to fire, you might say. And then they sat back and watched while the death count climbed higher.

What did Mr. Munro find? Of 27 talent “exemplars” showcased in the book, only seven continue to deliver decent levels of profitability and investment return in 2013. Twelve of them—nearly half!—have either disappeared (for negative reasons) or posted disappointing or disastrous profitability and investment returns over the last five years. Those companies that were “sufficiently aggressive,” in other words, have shown the book’s lessons to be sufficiently misguided. Who’s talented now?

Here’s another case study for you: Beth Axelrod left McKinsey in March 2005 to join eBay as head of human resources. That particular war hasn’t been going too well since, as the company’s stock has risen just 50 percent in the eight-plus intervening years, versus a 450 percent gain in Google and an 850 percent gain in Amazon. They thought they had hired Sun Tzu, and they got General George McClellan.

Oh, it gets better: The more praise heaped on a company in The War for Talent, which Mr. Munro measured by tallying total references per page, the higher the odds of relative failure, not success. That’s what’s known as a contrary indicator. You know the guy who always makes the wrong decisions, the one whose advice you solicit only to do the opposite of what he says? That’s this book. (And I’ve already checked, so you don’t have to: The book’s publisher, Harvard Business Review Press, is not offering a refund.)

So what the hell happened? It all goes back to the sample set. Bending over backward to be fair, Mr. Munro suggests that despite the “13,000 interviews” (a number that I don’t even believe), the research was not based on a data set of genuine high corporate performance in the first place. But I’m happy to put it more bluntly: If you’re going to ask someone why they’re so excellent, you probably want to first make sure that they actually are excellent. Because if they’re not, you’re going to end up constructing a management theory that has no basis in reality—or worse. Did someone say Enron?

McKinsey’s Dirty War: Bogus ‘War for Talent’ Was Self-Serving (and Failed)