Strategy

The pitfalls of poaching your competitors' talent

They usually fail to shine as brightly, new research shows, because the success isn't solely their own.

Silicon Valley’s endless crop of startups is constantly trying to poach employees from Google. To stem the outflow, the Internet search giant recently offered every staffer a 10% raise, and reportedly gave one engineer US$3.5 million in restricted stock to keep him from defecting to Facebook. Halfway around the world, Chinese companies have stepped up efforts to recruit talent from local subsidiaries of foreign companies, warns employment services firm Manpower Inc. in a recent report. Here in Canada, recruiters predict that as the economy picks up, so too will the war for talent. But the fixation on attracting star employees may actually benefit neither the worker nor the boss. A corporation can overpay for talent; existing employees may resent the new hire.

But most troubling is the fact that the star recruit’s performance can suffer a lasting decline after jumping ship. That’s the finding at the core of the new book Chasing Stars: The Myth of Talent and the Portability of Performance.

Author Boris Groysberg, an associate professor at the Harvard Business School, looked at the job shifts of 366 equity analysts between 1988 and 1996 using data from Institutional Investor magazine, whose annual ranking of analysts is widely respected on Wall Street. After the analysts left for other firms, their performance generally declined. In some cases, it didn’t recover for as long as five years. The same pattern is likely to occur in other industries, he contends.

Groysberg concludes that exceptional performance can’t be simply transplanted. We prefer to think that our knowledge and skills are our own and we can take them with us wherever we go, a belief that helped entrench a ‘free agent’ philosophy of employment. The theory has not been subjected to much empirical study, however. Now, Groysberg’s work suggests that our work environments and relationships with colleagues have more influence on our accomplishments than we are inclined to believe.

The equity analyst’s job, for example, relies heavily on an extensive network of co-workers, from junior associates who conduct supplementary research to traders who share insights about particular companies. Developing a new network from scratch at another company takes time, and the calibre of colleagues may not be the same. Indeed, analysts who left for firms of lesser quality (mainly defined as smaller) suffered the sharpest and longest performance declines.

Team dynamics also contribute to the length of time new hires spend in the C-suite. A study by European executive-search firm Egon Zehnder International found that chief marketing and operating officers had the shortest stints in their positions. It’s no coincidence those jobs require the most interaction with different departments. Baseball club managers already recognize the importance of building and maintaining strong teams. Pitchers, catchers and short-stops, who interact most closely with other players, move the least frequently to competing franchises, according to Groysberg.

The upshot for corporations is that blindly chasing stars is a poor strategy. Developing talent internally is cheaper, and generally less risky. But Groysberg doesn’t suggest that companies should stop poaching; they just need to do it with precision. One tactic he recommends is luring top performers from smaller, lower-profile companies. Analysts in his study who jumped from a boutique firm to a more established one saw no decline in their success. Smaller operations tend to have fewer resources workers can rely on, providing a clearer picture of their own abilities. ‘You know then that what made that person a star is all about him or her,’ Groysberg says.