Advice to Managers

Our research suggests that simply adding good talent to the mix does not always yield the results that managers might hope for — at least not in the short term. In 1999, for instance, the Washington Redskins signed some of the most recognized offensive and defensive stars in the NFL. But in spite of this addition of future Hall of Fame talent, the Redskins’ performance in the following season was far from stellar: They ended up losing as many games as they won. That record led one local sports columnist to write, “You bought all the ingredients, you put them in a big bag, you shook it up, and you figured you’d get an instant championship. It must amuse you when people still foolishly write that you have loads of talent. You know you just have loads of names.”8

Indeed, organizations should not think of talent management as a simple “build versus buy” dichotomy. Rather, there are some positions for which they can buy, and others for which they must build. Many of the skills that might at first glance appear to be portable — whether for NFL players or portfolio managers or sales account reps — can, in fact, be very difficult to transfer. Much depends on the specific capacities in which workers serve their organizations. To what degree, for instance, is a person’s job reliant on tacit knowledge that is specific to an individual company? And how interdependent is that job with respect to the work of others?

Sometimes, two jobs that appear to be the same on the surface can in fact have very different degrees of portability. Within the information technology field, for example, many software engineers perform “low level” programming, which makes the software and the hardware work together efficiently. (The term “low level” does not refer to the ease of the work itself but rather to the level at which the software will interact with the hardware.) Such programmers are the most portable because they are not so dependent on knowing what the software as a whole is meant to do. But other software engineers work at a higher level of code, where a user (a project manager, for instance) performs a task (budgeting) by deploying an application (a spreadsheet). Such “high level” programmers are relatively nonportable. As one programmer puts it, “The problems high-level programmers work on, and the groups of people they probably have to work with, tend to be large and surprisingly amorphous, and tied to many people and ideas.” High-level programmers need to have a sense of their organization’s politics, capabilities, internal structure and business needs, above and beyond their technical skills. Thus, much of their human capital is company-specific and is thus not portable.

Another huge factor is the way in which employees work with one another. Within investment banks, for example, the retail brokers (who handle individual clients) work primarily on their own. In contrast, institutional salespeople (who sell to major institutional investors such as Putnam, Vanguard and Fidelity) are more likely to perform their jobs in teams, and they must also work more closely with research analysts, traders and investment bankers. Thus, retail brokers can easily be hired from the outside — their largely external networks of clients and constituents might even be a huge benefit, injecting fresh blood into an organization. Institutional salespeople, on the other hand, should be developed from within, and efforts should be made to retain them.

The same type of work can also have very different degrees of portability depending on the type of organization. In human resources, for example, recruiters who work for a headhunting agency will typically form relationships with their client companies and with potential candidates in the job market. This external human capital is highly portable and can be transferred from one agency to another. In contrast, the human capital of in-house HR recruiting directors is far less portable because it resides in their deep knowledge of the culture, people, policies and processes of their organizations.

Moreover, managers should think carefully not only about portability but also about the granularity of that portability — does the employee’s performance depend more on the company or on his team? Consider the work of surgeons, who are extremely dependent on nonportable human capital because a successful operation requires profound levels of communication and cooperation among the surgeons, nurses and anesthetists. Interestingly, past research has shown that surgeons may not even be aware of the extent to which their performance is nonportable.9 (In contrast, radiologists might consult with other doctors but are largely self-sufficient and thus portable. As one radiologist commented, “Radiologists are so anti-social. We’re the only doctors who enter a room only after the patient exits.”) But the nonportability of surgeons might be more team-specific than company-specific. One Boston-based liver-transplant team, which moved intact from Beth Israel Deaconess Medical Center to the Lahey Clinic, performed a joint liver/kidney transplant — the first in medical history — just a few months after relocating. The operations involved three operating rooms and more than 20 medical professionals. Yet although moving an entire team offers the advantage of enabling workers to take some company-specific human capital with them, it also can be risky. There are legal matters surrounding teams moving. Also, if the team remains isolated, its members (including any star employees) will fail to create company-specific human capital in their new organization.10

Some jobs are clearly defined — punters and wide receivers, for instance, or even surgeons and radiologists. But that is not always the case. Many jobs are, in fact, sufficiently amorphous that managers can play a role in how much company-specific human capital is required for those positions — and thus how portable those employees are. With that in mind, managers should consider minimizing the portability of certain star positions in order to retain those individuals as a source of competitive advantage. Jobs can be made less portable by, for example, increasing the collaborative work involved (and breaking down any silos that might obstruct such cross-functional tasks); creating unique work-enhancing resources for employees, such as computer systems or knowledge bases, that are not available elsewhere; and offering training and development opportunities that build culture to create a unique or company-specific way of doing things. In addition, managers need to communicate this nonportability to their star employees to ensure that they realize the extent to which their individual success depends on the corporation’s capabilities, systems and work environment. In many cases, it is truly a partnership between a star and a company that generates outstanding performance. Replacing a star is always difficult even for a portable position because the pool of talent is only so deep. Thus it behooves managers to do whatever they can to (1) keep their stars from leaving, and (2) establish processes for developing new stars in-house so that the organization is not reliant on having to poach talent from competitors.

Finally, as we have seen, building company-specific human capital is not easy. Managers should expect a new star to take time to get his or her bearings, and to accelerate that process they should provide support in helping the new hire to identify and gain access to sources of company-specific human capital. Such “onboarding” practices are generally important for all new employees, but they are especially crucial for those in jobs that are highly nonportable. For such positions, managers might consider, for example, investing heavily in mentoring, integration and training programs, and working actively to “sell” new candidates to future coworkers. One approach is to have those coworkers participate in the interviewing and decision process to increase their buy-in for the individual who is selected.

Managers as Portable Employees

Executives also need to think of the portability of their own jobs so that they can better manage their careers. Specifically, they should be aware of the kinds of capital that drive their own performance, and they must think strategically about its portability and seek to develop whatever kind of human capital is most advantageous for their own career goals. For example, someone who works in an unstable industry, tends to change jobs frequently or plans to shift into and out of the work force might want to focus on positions that do not require much company-specific human capital. However, managers who have already built up a fair amount of company-specific human capital should think very carefully before changing jobs, recognizing that at least a short-term decline in performance will be inevitable. And when they are considering a move, they should try to assess how much company-specific human capital will be necessary in the new environment because that information will help them estimate their learning curve.

Another important factor is the amount of team-specific human capital that a new position requires. A large amount will increase the learning curve, which is why many executives have thought twice about joining an existing team and have instead brought their own key people with them into a new company. So, for instance, the new CEO of a corporation might assemble the core of her management team by bringing with her a COO and CFO whom she’s worked with in the past. In part, that CEO is trying to increase the portability of her own human capital. But executives and managers should be careful when selecting which employees to take with them. People should be chosen based on the portability of their own human capital as well as on the roles they will fill.

Consider, for example, the manager of an investment fund who is moving to a new company. He would like to bring a key research associate with him, someone who understands his financial philosophy and approach to investing — and who is also very familiar with his preferred style of working. But he would also like to take his administrative assistant, a person who regularly performs magic in getting things done — expediting an invoice, freeing up money from a tight travel budget, cutting through red tape to make a quick hire and so on. If the fund manager could bring only one of those individuals with him, whom should he choose? All other things being equal, job portability would suggest that the fund manager select the research associate over the administrative assistant. That’s because a lot of the associate’s human capital is team-centric (which can be transferred), whereas much of the assistant’s value is company-centric (which is nonportable). For that reason, when high-powered academics are lured from one university to another, they often take their graduate students and researchers with them but leave their secretaries behind. The value of the former lies in their deep understanding of the professor’s entire body of work (that is, portable human capital); the value of the latter lies in the knowledge of a particular university’s systems and processes (that is, nonportable human capital).

MANY OF THE SKILLS that are considered portable — whether for NFL players or research scientists or management consultants — may, in fact, vary widely depending on the specific capacities in which those workers serve their organizations. Understanding these capacities is essential for any company attempting to analyze the key ingredients of sustainable competitive advantages that derive from human capital. Our research, which has probed the application of human capital theory to talent portability, should help companies recognize that an entire class of factors — specific roles within an organization — greatly determines the portability of performance. With that knowledge, executives can gain a deeper understanding of the pros and cons of hiring certain star employees — and they can also better manage their own careers.

(Reprint #:50112)

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