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By The Numbers: Superior Leadership Produces Higher Return Than Superior Talent

November 4, 2014
Borderless Leadership

Decades ago the sage Peter Drucker was talking about his work as a consultant to large organizations. He noted that senior executives would invariably tell him their organization had attracted extremely talented people, and this accounted for their success. He then went out to meet these extraordinary people. After meeting with many people throughout the organization, he came back to the senior people and told them that their work force did not seem significantly different from all the others that he’d encountered. They were about average as far as he could tell. The difference he noted was that some organizations operated in ways that enabled ordinary people to accomplish extraordinary things.

Charles A. O’Reilly and Jeffrey Pfeffer elaborated the same theme in their book Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People.  They highlighted nine companies from various industries that had demonstrated a strong track record of success. Their fundamental conclusion was that these organizations had cracked the code on how to build healthy cultures in which people flourished.

While conventional wisdom would argue that success comes from being in the right industry, creating economies of scale, being at the forefront of technology, being a low cost provider or assembling extremely talented people; these companies had done just the opposite, and their results speak for themselves. Southwest Airlines receives more than 150,000 job applications annually for every 4000 available jobs. The SAS Institute receives 27,000 job applications for 900 openings and has an annual turnover rate of 2.3%.

Seventeen years ago the case for emphasizing raw talent was expressed by a team from McKinsey and Company in their classic report “The War for Talent.” Their conclusion was this: “in the new economy, competition is global, capital is abundant, ideas are developed quickly and cheaply, and people are willing to change jobs often. In that kind of environment all that matters is talent….Superior talent will be tomorrow’s prime source of competitive advantage.” 

In that study, some of the top factors listed by managers as being necessary for winning the war for talent were things such as:

  • Give high potentials the bulk of development opportunities
  • Put high potentials into jobs prior to them being ready
  • Eliminate the least effective performers

However, from our perspective this advice does not tell the whole story. We believe organizations can generally function well by hiring good, solid people as long as they ensure the organization has effective leaders throughout.

Talent is something you’re born with. Furthermore, it is hard to make dramatic changes to talent in the short run. As O’Reilly and Pfeffer point out, there is an immutable law of statistics that states there are only 10% of the people in a population who are in the top 10%. Therefore it is not possible for every company to be recruiting the most talented group.

But effective leadership is a skill far more capable of being developed. It’s not a limited, finite resource reserved for a few. People can make significant changes. Through effective leadership, organizations can create a winning culture that enables all of its people to function at their best.

Because effective leaders create a positive culture it becomes possible to have ordinary people accomplish extraordinary goals. A worldwide study of the auto industry, for example, confirmed that those applying people-centered practices were twice as productive and had significantly higher levels of quality as those who favored more traditional mass production. A one degree standard deviation improvement in human resources practices produced $20,000-$40,000 increase in stock market value per employee. Brokerage firms that improved broker retention by 10%, increased broker value by 155%. Watson Wyatt, respected HR consulting firm, concluded that “companies that link employee development to business strategy have 40% higher total shareholder returns than companies that do not.”

This all boils down to the execution and practice that comes from leaders who treat others with respect and who create a positive culture.

By Jack Zenger

Source: Forbes

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