Chasing Stars
By Boris Groysberg
Princeton University Press
446 pages, $38.50
The declaration in recent years that companies have to recognize they are caught up in a talent war has led to a free-agent mentality. Companies with bulging pockets will lure away knowledge workers from their competitors, as if they were basketball or baseball stars. The 2003 bestseller Moneyball, however, suggested that may not be the best strategy, recounting how the Oakland Athletics, under general manager Billy Beane, picked off low-priced players other teams ignored and made them into stars. Now Harvard Business School Professor Boris Groysberg has written what might be the clincher, Chasing Stars, outlining his elaborate study of investment bank analysts.
He chose analysts because they are the ultimate free-agent knowledge workers. The best ones are celebrities, regularly in the media, so their abilities are well known to competing firms. Their expertise is viewed as portable. An analyst who switches companies usually follows the same industries, so the job and external contacts required to carry out that work remain the same. They also don’t get distracted by the hassles of moving themselves and family; they continue working in New York and simply go to a different Wall Street address each day. Finally, their performance is tracked by a respected trade journal, Institutional Investor, which compiles an annual ranking of the best analysts, so it’s easy to compare how they fared before and after a switch.
Companies are usually eager to woo away the best – and pay bitterly for that lust. First, the seducer often spends too much for the new star, Prof. Groysberg writes. He calls it the winner’s curse: There is often an auction for the star’s services, and the bidder who most liberally estimated the value of the analyst will win, probably overpaying.
And the star doesn’t compensate by increasing his or her output. The study found that these mobile stars experienced an immediate degradation in performance. For example, an analyst who in a given year made the Institutional Investor top rankings and didn’t move made the rankings the next year 84.9 per cent of the time. But a top-ranked analyst who moved had only a 69.4 per cent chance of being ranked the following year. “Even after five years at a new firm, star analysts who changed employers underperformed comparable star analysts who stayed put,” he reports.
The reason – and it applies well beyond this field – is that at work we have some skills that are portable should we move, and other less-fluid skills that are related to the workplace in which we situated. The analysts took their brains and outside contacts with them. But they couldn’t take the special culture in which they were used to working, or the unique computer economic models their company had developed, or their colleagues who analyzed related industries and gave them useful advice, or the salespeople who promoted their work, or their supportive boss and mentors at their existing firm.
“What they left behind, in short, were the capabilities of the old firm and the practised, seamless fit between their own skill and the resources of the company,” he notes.
There were two instances where stars didn’t suffer a performance dip after switching, but both exceptions actually prove this point about firm-specific factors that tend to limit portability of talent.
The first occurred when a star moved with a bunch of teammates. Presumably in such “lift outs,” as they are know, the group of stars was able to bring with them some knowledge and capabilities from their old workplace lacking in the new firm, helping each other to be effective after the move.
