top management talent, strategic capabilities, and firm performance

Top management talent, strategic capabilities,and firm performance§

William F. Joyce, John W. Slocum

Organizational Dynamics (2012) 41, 183—193

Available online at www.sciencedirect.com

jo u rn al h om ep ag e: ww w.els evier .c o m/lo c ate /o rg d yn

How many times have you overheard senior leaders say, ‘‘Ourpeople are our most important asset?’’ You have probablyheard this proclamation more than a thousand times. Accord-ing to Gilt Groupe’s chief executive officer (CEO) Kevin Ryan,most companies really don’t act that way, but senior man-agers still make the statement. He offers this simple test: Askthe CEO if he or she spends more time on recruiting andmanaging people than any other function. Most would saythat recruiting and managing people falls somewhere in theirTo Do List, but not at the top. Senior managers and readers ofthe popular business press undoubtedly would agree withRyan’s assertion. Many of the managers who argue that peopleare their most important asset also offer a compelling ratio-nale for winning the war on talent. Unfortunately, the place oftalent on their to-do list is not consistent with these state-ments. The truth is that executives are the key assets thatbring all other functions into play, and their effort in buildingand sustaining talent is critical. According to Albert Black, CEOof On-Target, a logistics firm, ‘‘There is Darwinism taking placein our company. No longer are we out there hoping that goodpeople will find a reason to work for us. We must improve ourtalent in here if we are to stay competitive.’’

Significant investments have been made in talent in manyorganizations, in the form of new leadership developmentprograms or programs that emphasize becoming an employerof choice. But despite all of these programs and rhetoric,many organizations fail to capitalize on the opportunity forstrategic success that a talented management team can bringto their organization. Oftentimes these programs focus on

§ Portions of this paper were presented at a Prudential Seminar inSingapore, February, 2012. The authors would like to thank ToddDiener, Don Hambrick, Sue Hammond, Mike Harvey, Don Hellriegel,Andrew Hiduke, Ellen Jackofsky, Chip Jarnagin, David Lei, JackKennedy, Maribeth Kuenzi, and Jake Sagehorn for their suggestionsand constructive comments on this paper.

0090-2616/$ — see front matter # 2012 Elsevier Inc. All rights reserveddoi:10.1016/j.orgdyn.2012.03.001

management competencies and insights that have a ‘‘soup dujour’’ quality: Six-sigma and Black Belts in the 1990s, Inter-net-driven technologies in the early part of the past decadeand the leadership approaches consonant with newly discov-ered or refurbished concepts from the past, such as authenticleadership, management by walking around, etc. As a result,these programs’ effectiveness is difficult to assess in terms ofROI (return on investment), since often they teach generalcompetencies that attempt to reach a broad executive audi-ence. Further, at the first sign of trouble, many organizations’initial reaction is to downsize the workforce, thereby riskingserious impact on their organization’s effectiveness. JackWelch, former CEO of General Electric, has stated that indifficult times you need more rather than less focus on talentmanagement and training than in good times. Although itremains one of the most intriguing areas of human resourcemanagement, talent management is also at the nexus ofstrategic management — since executive leadership andattaining the best fit between people and organization strat-egy demands a long-term perspective. One of the mostimportant fundamental questions for managers is: ‘‘Givenour firm’s unique strategic situation, what must be done tomanage talent to achieve high levels of performance?’’ Asone can imagine, a number of different factors come to bearon how best to answer this question.

FIRM CAPABILITIES AND FINANCIALPERFORMANCE

Firm capabilities are the key determinants of financial per-formance across both industries and firms. These capabilitiesembody those collective insights, knowledge and activitiesthat directly translate a firm’s vision and mission into theconcrete action steps that produce financial results. Collec-tively, capabilities convert desired goals into realized out-puts, such as financial performance and competitive

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184 W.F. Joyce, J.W. Slocum

strength. Capabilities represent firm-specific assets thatrequire continuous investment to maintain a firm’s competi-tiveness. Determining precisely how and what types of cap-abilities impact financial performance has proven difficult.We believe that many of the problems can be traced to a fewcore causes.

First, senior level managers’ knowledge about strategyand talent resides in different silos. CEOs often spend moretime with their chief financial officers (CFOs) and vice pre-sidents (VPs) of marketing than with the VP of humanresources (HR). If the HR role is truly strategic, that roledemands time and attention. Management of talent must beunderstood in the context of the firm’s strategic capabilities.Yet senior managers have remained too inward looking, oftenadopting a ‘‘one size fits all’’ perspective. They have failed toalign their organization’s capabilities with their strategicneeds and opportunities, thus misallocating and wastingmanagerial talent. Strategy involves building on distinctiveresources and creating hard-to-initiate value propositions forcustomers. Strategy is concerned with distinction and build-ing unique sources of competitive advantage through valuecreation. Thus, does it make sense to treat talent manage-ment as an undifferentiated product? Building competitiveadvantage means that an organization’s talent needs to bedifferentiated in the same manner, with a unique array ofactivities and initiatives.

Second, effective business strategies differentiate a com-pany in ways that add customer value, and competitorscannot easily copy. Talent management has the potentialto create value through improved strategy execution. Talentcannot easily be copied by competitors. In Michael Lewis’best-selling book Moneyball, the Oakland Athletics devel-oped a novel and stealth talent management system thatenabled them to win games. The Athletics developed adifferentiated strategy for winning by acquiring talent(players) that other clubs didn’t value. In the business arena,organizations such as GlaxoSmithKline, General Electric,Cisco Systems, The American Heart Institute, Wyeth andApple, among others, have adopted difficult-to-imitateand firm-specific approaches to managing talent. Accordingto Terri Novak, COO (chief operating officer) at Kisco SeniorLiving Communities, ‘‘We win with talent.’’

Cultivating a unique base of talent ultimately meansinvesting disproportionately in certain types of employees,based on their strategic contributions and roles. This isnecessary for two reasons. First, senior level managers mustdetermine where talent can be translated into direct stra-tegic impact. Impact occurs when the right talent at the righttime drives the execution of a firm’s strategy. John Ham-mock, CEO of Viewcast, a manufacturer of video-ware pro-ducts, says, ‘‘We need to identify our strategic positions firstand then address our talent issues.’’ Second, a strategyfocused on matching talent to key firm requirements providesa clear and unambiguous alignment basis for the firm. That is,once the organization understands what its capabilities are, asharper focus on developing management talent can thusensue. QuikTrip, Trader Joe’s, Costco, and Wegmans, amongothers, have found ways to align their employees’ talentswith their business strategy. These companies focus on deli-vering their products/services to customers at competitiveprices with minimal inconvenience. Their entire organizationis built around these capabilities.

QuikTrip is a convenience store chain with more than 540stores and $8 billion in sales. This alignment results in a 13percent turnover rate among employees, compared with a 59percent industry average, and 66 percent higher sales perhour than other convenience stores. CEO Chet Cadieuxbelieves that extroverted employees sell more, like eachother more and are more likely to engage customers in smalltalk, which increases customer satisfaction. Selecting extro-verted managers fits with QuikTrip’s organizational capabil-ities. Once hired, all full-time employees receive 80 hours oftraining, and part-timers receive 40 hours. During this train-ing, QuikTrip’s management explains how employees contri-bute to the firm’s exceptional focus on key tasks rooted in itsoperation-driven discipline. For example, employees quicklylearn that they need to open up additional cash registers assoon as a line builds at the checkout counter. Likewise,employees are expected to clean the inside and outside ofthe service station to exacting standards, ensuring that trashdoes not fill up in disposal bins, automated gas dispensershave paper to process credit-card transactions, and wind-shield cleaning fluids remain filled for customers’ conveni-ence. Inside the convenience store, employees also aretaught to monitor how long food is cooked and warmed toensure freshness and even preparation. This focus on runninga tight ship translates into executive execution at eachservice station.

Other companies, such as Dell, Amazon, UPS, USAA, havebecome industry leaders through their laser-like focus onoperational discipline. These firms seek ways to minimizeoverheard costs, reduce waiting time or work-in-process,eliminate intermediate production steps, reduce transactioncosts, and streamline business processes across functionalboundaries. In turn, these companies consistently delivertheir products/service to customers at extremely competi-tive prices with minimal inconvenience. The entire organiza-tion is built around these capabilities.

Consider the example of the near-obsession that UPSdevotes to refining and perfecting its operations-based dis-cipline. UPS invests tens of million each year in state-of-the-art information and order-fulfillment technologies thatenable employees, vendors, and customers to track thestatus of their package shipments at any time. RecentlyUPS has invested in three-dimensional bar-coding trackingsystems that can read packages from all six sides as theymove down a conveyor belt, after which they are sorted bysize, shape, and delivery destinations. UPS drivers aretrained in over a hundred exacting procedures, includingthe need to avoid left turns where possible and to pre-placepackages in the truck in such a way that heavier packagescome out before lighter ones in order to save time.

At QuickTrip, Chet Cadieux, CEO, believes that in-storelogistical processes represent the strategic capabilities thatdifferentiate QuikTrip from its competitors. However, thisdedication to logistics becomes moot if employees are nottrained and retained to utilize these resources to the max-imum extent. Employees are cross-functionally trained toperform a variety of tasks — from checking customers out tobrewing coffee to doing janitorial work. Logistical processes,including everything from merchandise ordering to movingmerchandise around in the store, are timed. Employees areempowered to decide how many units of each SKU (stock-keeping unit) to order. QuikTrip believes that empowering

Figure 1 Firm Performance Types.

Top management talent, strategic capabilities, and firm performance 185

employees in these ways make them responsive to localneeds and preferences, as well as increasing customer andemployee satisfaction. By standardizing processes, employ-ees can move from store to store, since all stores have thesame design.

Ideally, strategic capabilities enable the firm to furtherreinforce its distinctive competencies, which represent com-petitive strengths when deployed against a rival’s weak-nesses. For example, McDonald’s finely tuned supply chain— which maximizes buying power for everything from pota-toes to ground beef to beverages —enabled it to outflank andsuccessfully compete against rival Burger King for more than20 years.

Talent development at such hypercompetitive firms asSamsung, Toyota, Intel, and Whirlpool have vaulted eachof these companies into industry leadership positions. Adominant theme that is shared among these firms is thatthey take a long-term approach to developing talent in eachbusiness unit and department to ensure employees supporttheir firm’s strategic mission. Nevertheless, firm capabilitiesand talent pools vary considerably across firms, and they arebuilt and managed differently. Talent management must alsomatch the organization’s specific strategy and mission tocreate and reinforce these capabilities. For example, whilespeed, product innovation and manufacturing flexibility arecapabilities at Viewcast, these same capabilities are lessgermane at more consumer-oriented retailing giants asCostco, Jiffy Lube, YUM Brands, or Club Corporation. Talentmanagement practices and challenges would differ amongthese firms based upon strategic trajectories and the varyingcompetitive market and financial performance challengesthey face.

OUR STUDY

The purpose of our study was to understand how the strategiccapabilities of firms align with the talent of senior managersto affect the financial performance of their firm. We studied200 firms drawn from 40 industries over a 10-year timeperiod. The firms varied in size, and represented firms thatwere both domestic and global in scope. We made an effort tobe as exhaustive as possible in the identification of relevantmaterial pertaining to the performance of the firms studied.We were careful to assess source credibility before includingdata from any particular firm.

Each company in our study was assigned to an industrysubgroup such as retailing, consumer electronics, or energy(40 in all). They were given a specific performance designa-tion in that subgroup based on their performance relative topeers. The specific performance measure utilized for thispurpose was total returns to shareholders (TRS). Companieswere identified by their performance as a Winner, Climber,Tumbler or Loser over the 10-year time frame of the study, asshown in Fig. 1. To do this, we examined a firm’s performanceover two five-year time frames.

To illustrate, some firms started out with strong TRS in thefirst time period (first five years) and became even better inthe second time period (second five years) — these are ourWinner firms. Tumblers generated strong total returns toshareholders in the first five years of the study and thenfaltered. Climbers and Losers both began with weak TRS

relative to their competitors. However, Climbers were ableto overcome their problems and rise to a high level ofperformance by the end of the 10-year time period. Theyengaged in strong management/talent practices that sub-stantially improved their competitive position within theirindustry. Losers muddled along, never rising above mediocreperformance in TRS, but not failing.

Our designation of Winners, Losers, Climbers and Tumblerstherefore is based upon the financial metric of total returnsto shareholders. In order to test the robustness of thisclassification, we used several alternative measures of finan-cial performance for classifying the firms. These includedreturn on invested capital, growth in sales, growth in assets,and earnings per share. All metrics produced similar results,suggesting that a classification based upon TRS was a validmeasure of a firm’s performance.

This research design has a number of important charac-teristics. First, it allows us to separate industry character-istics from firm capabilities as causes of financialperformance. Specific industries may be more or less com-petitive, concentrated, or regulated than others. By compar-ing the capabilities of firms within, as opposed to acrossindustries, we eliminate broader macro-industry effects as apotential cause of the performance differences among thefour firm types comprising the industry grouping (the‘‘Quad’’). Industry effects are similar for all firms. It wouldbe misleading to compare Shell to Nordstrom, or Best Buy toSony. By comparing firms within industry groups, we separatethe effects of capabilities and industry membership on firmperformance.

The use of this design allows us to more clearly identify thecapabilities that correlate with firm performance. Previousresearch has sometimes studied firms that are dominantlydrawn from one of the four types above (‘‘excellent’’ com-panies, ‘‘great’’ firms, etc.). Despite the interesting resultsof these studies, an important question remains: How do weknow that Winner firms do anything different from Losers, orClimbers, or Tumblers? Common capabilities cannot be thecause of different levels of performance, and so we must lookto the differences among the capabilities of Winners, Losers,Tumblers, or Climbers for an explanation. Identifying thesedifferences is difficult or impossible without the inclusion ofmultiple firm types, as in the research design employed here.

The primary sources of data for this study were FactBooks, which are collections of publicly available informationcontaining information specific to each of the 200 firmsstudied over the 10 year time period of this research. These


books contained a number of reports, articles and analysesprepared by analysts, journalists, or researchers studying theparticular firm of interest. In general, the Fact Books arevoluminous and contained 20—30 papers focusing in each ofthe two five-year time periods comprising the overall 10-yearstudy. Although some papers are short, most are between fiveand 10 pages in length. Over 60,000 pages of data wereanalyzed in our study.

All interviews and articles were initially reviewed for eachfirm. Following this phase, specific sources were eliminatedfrom further analysis if they over-sampled particular timeframes (generally, selected studies were balanced acrossboth the years and periods of the study, adjusted slightlyfor publication lag), or lacked source credibility (for exam-ple, Fortune, Wall Street Journal, Business Week were pre-ferred over obscure journals and publications).

What We Found

For each firm, issues bearing on that particular firm’s per-formance were identified, categorized and then clusteredbased on their content. This process yielded eight clusters ortypes of firm capability that explained the differences inperformance across all of the firms in the study. Interestingly,four of these clusters were essential for high performance.That is, winner status could not be obtained without excel-ling in all four of these capabilities. All winner firms scoredsignificantly higher than losers, climbers, and tumblers onthese dimensions. Winner status could not be obtained with-out possessing all of these capabilities. These clusters werecomprised of issues representing Strategy, Structure, Cul-ture, and Execution capabilities. They are termed ‘‘Founda-tion Clusters.’’

Why these four foundation clusters? Our research indi-cates that whatever a company’s strategy is, whether it is lowprices or innovative products, it will work if it is focused,clearly communicated and well understood by all stake-holders. The essence of strategy is to match strengths anddistinctive competencies in such a way that the firm enjoys acompetitive advantage over its rivals. Strategy should bebuilt around both the demand side (customer expectations)and the unique choices that a firm makes about its valuechain (supply side). We believe that the real strength of acompany’s strategy is doing something better than its rivals,because the company performs different activities in itsvalue chain or has chosen a different configuration of these.

Dollar General maintains a clear and intense focus on low-income customers who live in small rural communities that aretoo small for ‘‘big box’’ retailers, such as Target and Wal-MartStores. It competes with Family Dollar and Dollar Tree, andnumerous independently owned stores. Dollar General doesn’taccept major credit cards (saves rebate to credit card com-panies), but accepts food stamps. While managers spend hoursagonizing over how to structure their organization, what reallycounts is whether the structure reduces bureaucracy andsimplifies tasks. Structure should enable the firm’s strategyto be implemented flawlessly. People in the organization mustbe able to understand how their actions interrelate with theactions of others to support and execute the firm’s strategy.Corporate culture provides the glue that reflects the normsand ideals of the firm and guides employees’ behaviors. It is the

corporation’s ‘‘personality.’’ Once shared values become partof the rubric of the firm’s culture, they serve as psychologicalrudders that guide employees’ behaviors. Finally, the firmneeds to execute its value proposition to its customer con-sistently. To deliver on its promise to provide quality good atlow prices, Dollar General not only focuses on a select group ofcustomers, but also performs different activities in its valuechain. For example, it doesn’t advertise, but relies on word-of-mouth. It doesn’t carry non-perishable items or soft goods. Atypical store carries 10—12,000 SKUs. Stores are 7,200 feet andare located in stand-alone strip centers along state/countyhighways used by truckers and working parents. It also usessophisticated logistic management techniques to cut its dis-tribution costs. For example, Dollar General drops 150—200slow moving items each year and replaces these with betterofferings. It has built nine regional distribution centers toreduce the distance that trucks have to travel to its 9,800stores. Drivers use 53-foot semi-tractor trailers to haul mer-chandise to the store instead of 45 footers, saving time andmoney to deliver goods to the stores.

However simply possessing all four foundation capabilitieswas not enough to ensure Winner status. Becoming andremaining a Winner required excelling at two additional cap-abilities from among the remaining four capabilities. Theremaining four types of capabilities (from the initial eightafter naming the first four foundation capabilities) are Talent,Leadership, Innovation, and Growth. When high levels of anytwo of these were combined with high levels of the fourfoundation capabilities, Winner status was obtained. Sinceonly two of these capabilities were required for high perfor-mance, and because it could be any two of the four, we namedthe remaining four clusters complementary, as opposed tofoundation capabilities. For the purpose of obtaining Winnerstatus, it does not matter whether these two complementarycapabilities are Talent and Leadership, Growth and Innovation,or any other combination of the non-foundation capabilities.

These findings are very important because they makeclear how Talent contributes to firm performance. Talent,by itself, cannot produce performance. Unless talent prac-tices build and sustain the four foundation capabilities ofstrategy, structure, culture and execution, they make littledifference to firm performance. The purpose of this paper istherefore to illuminate how talent practices make such acontribution. Understanding successful talent practicesmeans understanding their role in achieving these resultsin the strategic context of each of our quad types, Winners,Losers, Climbers, and Tumblers.

There are two assumptions in this analysis. First, CEOs oflosers and tumblers wish to improve their firm’s performance.While this seems like an obvious assumption, experiencesuggests that some businesses (perhaps most often familyowned) are content to generate mediocre results relative tocompetitors, as long as they generate sufficient income andsurvive. We contend the desire to achieve winner status is amandate. Our second assumption is that firms will undertakedifferent talent practices based upon their strategic type.Losers will undertake different actions than Tumblers, andWinners engage in different talent practices than Climbers.The specific talent actions undertaken will depend on thestarting point for the climb from mediocrity to winner status.

In order to identify these critical Talent practices, itwas therefore necessary to understand the capabilities

Figure 2 Capability Space.


distinguishing Winners, Losers, Climbers, and Tumblers, aswell as the mechanisms through which Talent influences them.This allowed us to assess the efficacy of various talent manage-ment practices in achieving high levels of firm performance.

We compared the capabilities of each of the four firmtypes (Winner, Loser, Climber, and Tumbler). Each type had aunique profile of capabilities. Fig. 2 portrays the results ofthese analyses for the Winner firms in the form of a ‘‘Cap-ability Space’’ (CSP). Each dimension of the capability spaceis based on one of the four Foundation clusters. The Strategyand Execution capabilities are shown on the Y axis in Fig. 2,with Culture and Structure on the X axis. Broadly, thesecorrespond to ‘‘Strategic’’ and ‘‘Organizational’’ dimensionsof the CSP. Strategic and Organizational dimensions focus onlonger (Strategy and Culture) and shorter (Execution andStructure) term capabilities, as shown in Fig. 2.

The Foundation capability profiles of each of the remain-ing three firm types (Losers, Tumblers, and Climbers) may

Figure 3 Capab

then be identified by computing the ratio of each of their fourcapability scores to those of the Winner profile shown in Fig.1. The resulting capability scores may be interpreted as thepercentage of the Winner profile scores achieved by each ofthe remaining three firm types (Climber, Tumbler, and Loser)on each of the four foundation capabilities. The Winner firmoccupies almost 100 percent of the CSP by definition. Each ofthe remaining three quad types occupies only a portion of thisspace.

Comparing the Capabilities of Winners, Losers,Climbers, and Tumblers

The profiles of Winners, Losers, Tumblers, and Climbers arecompared in Fig. 3. The shaded area in these diagramsrepresents positive actions (e.g., related acquisitions,reduced bureaucracy, and the like) taken with respect toeach of the four foundation practices, and subsequently, foreach of the four quad types. The white area representsnegative actions (excess bureaucracy, failed diversification,failing to maintain customer focus, etc.).

Losers, such as K-Mart, Zenith, and Pilgrim’s Pride, seemto have very few strategic capabilities. They execute mod-erately well, but only against other firms that have a com-parably weak set of foundation capabilities. Theseorganizations are rife with bureaucracy, rules and regulationsand rely on hierarchy to control their employees. There arefew mechanisms for cross-functional coordination. They havecreated a culture that is controlling, ambivalent and unin-spiring. High performing managers have left these firms,leaving Losers with few managers capable of executing theirorganization’s foundational capabilities. As a result, thesefirms consistently underachieve in relation to their perfor-mance goals. Losers typically react to their environment andare likely to remain excessively internally focused andriveted to short-term performance gains, as opposed toseeking new ways to redefine their business opportunities.

ility Lessons


Tumblers, such as Alberto-Culver, Food Lion, and CircuitCity, possess a stronger, yet still troubling profile. First, wenotice that Tumblers (who were once Winners) have stoppedbuilding the management capabilities that led to their suc-cess. This is compounded by many errors — in fact, so manythat they virtually offset the positive actions attributed tothese firms. These errors likely stem from a growing mis-alignment somewhere among the four dimensions over time.As the misalignment exacerbates, the errors exert an evengreater deleterious impact on performance. Tumblers havelost many of their winning strategic capabilities. They com-pounded this with many errors in attempting to rebuild them(e.g., untimely acquisitions that are unrelated to their corecompetencies, downsizings, poor performance reward sys-tems) — a dangerous posture indeed. Tumblers are likely tohave drifted into believing that their sources of competitiveadvantage would never change, and thus become ossified andvulnerable to new types of competitors.

Climbers, such as Nordstrom, Adobe, and Ryland Homes,seem to have avoided making errors. Climbers are strongexecutors. They build strong strategies on the basis of theirstrategic capabilities and managerial talent. Winners excelat all four capabilities. With strong strategy and execution,Winners build on these strategic capabilities to strengthenboth structure and culture. They make few errors and enjoythe luxury of continuously refining and improving alreadyexcellent capabilities. They hire strong executives based ontheir ability to executive their firms’ foundation capabilitiesand follow carefully executive succession plans andemployee development programs. These improvementslikely generate their own momentum, as competitive successreinforces those strengths.

Turning Points

Let’s take an in-depth look at the talent practices that areassociated with these four types of firms. To examine howstrategic capabilities and talent practices interact to deter-mine performance, we will contrast the four firm types atcrucial ‘‘turning points’’ in their financial histories. Turningpoints represent critical inflection points that initiate atransition to higher or lower levels of financial perfor-mance. All managers aspire to take their firms to the Winnerposition, and generally take action to exit the Loser posi-tion. Similarly, Winner firms seek to perpetuate their posi-tion and avoid falling to lower levels of performance.Climbers and Tumblers therefore represent transitional firmtypes occurring at turning points in the performance of thefirm; in the first case, from a lower to a higher level ofperformance, and, in the second, a fall to lower perfor-mance relative to their competitors. In this sense, Winnersare paradoxically vulnerable to becoming Tumblers anytime that their talent practices become misaligned withchanges in their strategy.

In investigating the critical role of talent, we found ituseful to consider three types of actions taken by firms overthe 10-year time period of the study. We identified theseaction types by ranking the various issues comprising eachcapability for both time periods 1 and 2 of the study. Theaction types for time period 1 can then be compared to thosefor time period 2, for each firm. Some actions will appear inonly time period 1. Others will appear only in time period 2.

Some will be present in both time periods. These three typesof actions can be described as follows:

Type I — Early Movesand Corrections:

These are issues that were men-tioned predominantly in time period1, but not time period 2. These char-acterize actions that were taken inthe first period of the study, but werediscontinued in the second period.

Type II — Later Movesand Positioning:

These are issues that are predomi-nantly mentioned in time period 2,but not time period 1. These areactions characterizing the secondperiod of the study but not the firstperiod, or critical success factorsrelevant at the later stages ofchange.

Type III — ConsistentMoves and Themes:

These are issues that are present inboth time periods 1 and 2. They arethe ways that the organization hasremained the same over time, or hasmaintained a consistent focus onparticular courses of action.

The overall size of the organizational change is larger thegreater the frequency of Type I and Type II issues. Theorganizational causes for any performance change will befound in the distinctions between these two types of issues.Higher frequencies of Type III issues indicate that the firmtended to follow a similar strategy and implementationprocess over both of the two time periods of the study.

Four Profiles

Firm capabilities represent long-term investments in knowl-edge, insights, and processes that translate the firm’s missionand goals into actions. By their very nature, capabilities are afunction of each firm’s unique history, position within itsindustry, prior investment decisions, and certainly the visionof senior management Thus, attaining a tight-fitting matchbetween organizational capabilities and talent managementrequires a deep understanding of the firm’s businesses, aswell as how the requisite set of talent is likely to evolve overtime. This reality presents a number of important questionsand challenges for senior management, as evidenced by theturning points listed below.

LosersLoser firms concentrated on the strategic capabilities andneglected the organizational moves shown in Table 1. Byfailing to achieve any real gains in strategy and execution,they are never able to address the relevant issues of recruit-ing talented managers and creating a high performing cul-ture. Losers seem to have a superficial understanding ofstrategy, since they believe that strategy formulation auto-matically leads to tight execution. On the contrary, strategyimplementation is effective only to the extent that requisitestructure facilitates smooth resource allocation (includingpeople) and the culture rewards the kinds of behaviorsnecessary to reinforce execution of a strategy. Followingan early emphasis on broad markets, Losers pursued a set

Table 1 Turning Point: Failing to Climb.

Early Moves Consistent Moves Late MovesLoser Inactive, no focus Inactive, fail to build Become active, fail to align and invest

Strategy Emphasized broad markets/acquisitions

Focused on niche markets Emphasized core businessEmphasized growth

Execution Product diversificationWeak financialsMarket share plateaus +/ordeclines

Tried to reduce costsManagement squeezes fundingfor new products to save cash

Improved efficiency/decreasedcosts lateWeak marketingPoor distribution channels

Fast/flatstructure

Promotion from within fostersgroup think

Failed to eliminate excessivebureaucracy

Organizations remain slow andsluggish despite change

Culture Few norms rewarding highperformance; no feedbacksystems; easy going

Mechanistic systems fosterloss of commitment; notresults oriented

Employees not enthusiastic aboutjobs; no praise for performance;no job security

Talent Extensive management changesHired weak managers

Management talent is unevenKey human capital leave

Hired Improved management team


of moves that were inconsistent with implementing a sus-tainable strategy. Oftentimes they find themselves ‘‘stuck-in-the-middle,’’ neither able to achieve a razor focus to serveniche markets, nor able to attain scale to serve broader,larger markets. They increased their emphasis on nichemarkets as they simultaneously sought broad market posi-tions. Their structure is excessively bureaucratic and empha-sized hierarchical decision-making, despite efforts toimprove it. Tall and brittle silos reduce lateral communica-tion and impede attempts to speed product development andconnect with customers. Leaders reemphasize their corebusiness to improve their cost positions, but marketing andorganizational problems continue without resolution.

Consider the stages of talent management practices in thecontext of these moves. Losers seem complacent and inac-tive. In early stages they do make management changes, buthire managers who lack the managerial acumen to grow thefirm. Their loser status inhibits the ability to provide execu-tive compensation sufficient to attract high talent individualsand the result is consistently uneven management quality.This team can reasonably be seen as responsible for some ofthe slight improvement in the Late Moves and Correctionsstage, but it is only an insufficient beginning. Unfortunately,the lack of a clear strategic direction, compounded with theinability to recruit bold new managerial talent, creates avicious downward spiral in which existing talent seeks toleave and new talent is hesitant to join the firm.

Losers fail to align and invest in people. Senior managersin the Loser category focus on internal exigencies and thingsthat demanded immediate attention. Managers have rigidjob descriptions that focus on solving tactical, as opposed tostrategic, issues. The urgent need to put out today’s firestrumps important investments in the future. Little attentionis paid to strategic planning and focusing the firm on how itcan provide value added product/service features to currentand future customers. Once created, few positions are elimi-nated, resulting in an even more complex and byzantineorganizational structure. The objective of selecting talentis to fill positions, often based on political exigencies, insteadof seeking the best candidate. Performance expectations are

obtuse, and little performance feedback is provided. Like-wise, performance metrics tend to be invariant for allemployees, irrespective of actual performance. Employeedevelopment is driven more by convenience than by design.These practices are negative mirror images of the practicesof winner firms like GE, MetLife, Dollar General, and Camp-bell Soups.

ClimbersClimbers appear to begin where Losers end, and present astrikingly different set of moves, as shown in Table 2. Climbersare active with respect to all four foundation capabilities, asthey seek to increasingly build and leverage their strengths toregain previously high levels of financial performance. Theystick to a focus on their core competencies. Successful struc-tural changes to improve the speed of decision-making andeliminate bureaucracy precede and lead to the institutiona-lization of these changes in a productive and strong culture. Intheir early move phase, climbers shed poor businesses andbroaden product lines to create a sustainable competitiveadvantage in their industry. These structural moves freeresources for managers to pursue more promising opportu-nities where they can build upon their unique sources ofcompetitive advantage. This pattern is consistent across theentire 10-year time frame, with new, but consistent initiativesat both the early and later stages of the time period. There isan accompanying, intense and consistent emphasis on costtake-out and efficiency at all stages. Operations and flawlessexecution dominate these firms’ organizational DNA.

The development of talent practices also displays a similarpattern of activity and consistency. In early stages, down-sizing actions complement efforts at cost reduction to shar-pen execution. Management is successfully restructured froma hierarchy-driven to a decentralized management system,as layers are systematically eliminated. This new structureprovides the leadership necessary for faster learning, unim-peded communication flows and process improvement atlater stages of change. With new participative leadershipand a lean workforce, talent practices focus on empower-ment, investment in high talent individuals, and further

Table 2 Turning Point: From Losing to Climbing. Climber Strategic Capabilities and Talent: Early, Consistent and Late Moves.

Early Moves Consistent Moves Late MovesClimber capabilities Focused and reduced costs Builds capabilities Consolidate, align, invest

Strategy Broadened product lineDivested poor businessesQuick strategic correctionsCreated new strategic focus

Consistent focus on broadmarkets

Emphasized growth. broad markets,core businessFocused on key stakeholdersGlobalized business/markets

Execution Improved operationsCorrected poor productdevelopmentReduced high costs

Diversified productsImproved customer serviceContinued cost take-outBuilt strengths marketing/ops

Improved customer serviceBetter cost controlsDeveloped new stronger products

Fast/flat structure Concentrated on speed indecision makingRestructured to eliminatebureaucracy

Built quick and responsivestructure

Focus on both customer intimacyand operational effectiveness

Culture Comfortable with conflict;action-oriented

A clear guiding philosophy thatrewards performance,cross-functional teambuilding risk-taking andbeing aggressive

Built a productive, strong culture;employees share information

Talent Quickly downsizedRestructured management

Changed key managersEmpowered managers

Strong CEO focused on resultsInvested in people and changeImproved empowered managers


successful workforce change. Climbers can be characterizedas active and consistent in aligning, consolidating and invest-ing in capabilities.

Work in these organizations is constantly revised to findways to add more strategic value for customers and eliminatework that no longer adds value. Organizational disciplinefocuses on attaining ever-higher levels of performance, mostlikely through stretch goals that are unyielding in employeeexpectations. Leaders identify roles that add strategic valueand demand that they be filled by the best talent available.They do not settle for second best. Performance expectationsare clear and consistently raised. Specific performance feed-back is provided on an informal and formal basis. Rewards aredisproportionate, reflecting the strategic contribution/per-formance of the person to the firm. Considerable time isdedicated to developing talented managers through the useof mentoring programs, rotational assignments, and externaltraining programs.

WinnersWinners seem to begin where the Climbers end. Winners buildon their previous success as Climbers to leverage winningcapabilities as illustrated in Table 3. Strong cost and marketpositions allow managers to pursue previously inaccessibleinternational and niche positions, in addition to a broadproduct focus. Defining unique value propositions that allowtheir firm to focus on profit is the focus of all managers. Theirorganizational structure allows for fast communication andknowledge sharing. Winners institutionalize their success bydeveloping innovative procedures for strategic market selec-tion, and operationally, through continuous improvementefforts. They maintain a focus on structure at both earlyand late stages, achieving a dual focus on speed and marketneeds. The culture empowers employees to make decisionsand does not punish them for mistakes. It is aligned with

structure and the other remaining capabilities, emphasizingmarket needs, motivation, empowerment, and trust — thenecessary ingredients for speed and execution.

This pattern repeats itself for the talent practices. Win-ners invest resources to develop strong human resourcepractices across the 10-year time period and increase theseefforts even further in the late stages of the period. Notably,Winners engaged in incentive compensation practices to asignificant degree over the entire 10-year time period. Win-ners leverage and institutionalize their highly successfulcapabilities (such as celebrating small wins, having directreports strategically assess their boss, cross-functional men-toring) consolidated their gains at higher levels of perfor-mance and invested for the future. Many of the winner firmhuman resource practices become best practices and set newbenchmarks for talent management in their industry. GE’sWork-Out! Process became a new standard for large-scalecultural change. Its Change Acceleration process was mod-ified by GM and subsequently used to produce over $1 billionin cost savings — an amount critical to GM’s turnaround.

The risk for winners is that they become blinded to theneed for new types of talent as their businesses evolve,particularly if the underlying structure of the industry beginsto change or major competition emerges from unanticipatedrivals (such as foreign competition). Talent that is continuallyrewarded for pursuing excellence today may shortchange theongoing learning needed to better prepare for tomorrow’suncertain exigencies.

TumblerThe Tumbler, having obtained winner status, fails to sustainit. Just like the fabled Icarus from Greek mythology, whosewings of wax and feathers enabled him to fly so high andso close to the sun that his wings melted and he fell intothe Aegean Sea, Tumblers fall ungracefully. Just as Icarus’

Table 3 Turning Point: Remaining a Winner. Winner Strategic Capabilities and Talent: Early, Consistent and Late Moves.

Early Moves Consistent Moves Late MovesWinner capabilities Leverage winning practices Institutionalize winning Consolidate gains/invest

Strategy Emphasized international andniche marketsAcquired strategically-grown,obtain synergies and competencies

Strategic market selectionDiversified and increasedmarket share

Strategic acquisitionInternational and geographicgrowthGrow market share

Execution Focused on effective marketingMaintained strong product positionUsed cost reduction to improveprofitability

Provided good customerservice, qualityContinuous improvementeffortsEstablished good operatingcontrols, good efficiency

Continue to improve marketingContinuous improvementefforts across functionsProduct diversification

Fast/flat structure Fast communication andknowledge sharing

Restructure to focus on marketOrganization reacts quicklyto marketMore efficient structure

Culture Emphasis on teams, fairness,tolerance, informality, peopleempowered to take initiative

Strong team-based culturefocused on market needs

Strong shared culture ofempowerment, trust andmotivation

Talent Downsized effectivelyExperienced, empowered,and hands-on management team

Leverage incentive compensationStrong HR practices produceand retain strong CEO, workforce

Continue to Invest inWinning HR practices


impetuous nature proved self-destructive, Tumblers followtheir success with mistakes (e.g., mergers, acquisitions,product expansions) that take them away from theirstrengths, as shown in Table 4. Their broad product positionis compromised by decisions to narrow the product line.Performance falters, and they lose key strengths in market-ing, sales, and customer service. Some strategic strengthremains, and they are able to grow some existing businesses,in spite of having made serious mistakes (e.g., untimelyacquisitions, poorly integrated mergers). Tumblers do notspend much time on the organizational capabilities that were

Table 4 Turning Point: From Winning to Losing.

Early Moves

Tumbler capabilities Forgotten greatness S

Strategy Narrowing product line erodescompetitive advantageBroad product position compromised

GreGre

Execution Key strengths in marketing, sales,and customer service erodeFinancial performance faltersLose focus on profits

ImpproImpserCon

Fast/flat structure

Culture Lost strong, entrepreneurial,team based culture

Relrule

Talent Reduced use of incentive compCeased effective HR practicesLost CEO/management strength

Manune

so important to them in the past. Once strong entrepreneur-ial and team based cultures disappear, replaced perhaps outof frustration by an unnecessarily dysfunctional culture thatharmed critical strategic relationships with partners. Tum-blers lose critical capabilities, replacing them with unsuc-cessful ones. They begin to make mistakes, while forgettingtheir greatness.

Some of the reasons for these failures may be seen in theirtalent practices. Early talent moves include the abandon-ment of incentive compensation practices. Performancemetrics and reward systems become static and tend to

Consistent Moves Late Movesome strengths remain Continued mistakes

w international businessw existing businesses

Inconsistent strategic emphasesNew focus on niche marketsSome remaining strengths

roved broadenedductsroved customervice/opstinued cost take-out

Attempt improvement inproduct, mark, growth but falterProduct line managed poorly

Restructured late with mixedresults

ative freedom froms; flexible

Not demanding or achievementoriented; little focus on quality

agement remainsven in quality

Poor CEOWeak and downsized managementWeak employees


discourage stretch goals and personal excellence. Perhaps asa consequence, there is an exodus of top management talent,including the CEO. Without supportive leadership, othereffective human resource practices in selection, training,development and staffing are discontinued. With this pre-cipitating series of events, Tumblers are unable to rebuildtheir management quality. The final result is poor seniorleadership and an unengaged and uncommitted workforce.Tumblers abandon their winning capabilities, fail to rebuildon strengths, and perpetuate their mistakes. There is nomore brilliant example of this death-spiral than the oncegreatly admired Kodak and Polaroid corporations. Now lost tobankruptcy, their once exemplar human resource best prac-tices were destroyed by abandoning the talent practices thathad made them great and by their CEOs’ hubris.

CONCLUSIONS

Managers should place emphasis is on avoiding paths that failor stumble, and on creating/sustaining those that lead toand/or sustain high level performance. The continuing devel-opment of talent practices seems to have a clear role in theseprocesses in at least three ways. First, talent practices musthave a strategic focus and support the foundation capabilitiesof the firm. Winners and Climbers achieve this, whereasLosers and Tumblers do not. When Climbers have gainedWinner status, a second role for talent becomes important.The talent practices of Winners continue to support andconsolidate earlier successes. Winners institutionalize theirstrategic capabilities through talent practices that continueto ensure they have the executive leadership to create thestructures and cultures to support strategy and execution. Allof our winner firms, Williams-Sonoma, Kohl’s, Dollar General,

GE and Gillette, took this critical step. Finally talent prac-tices need to model the desired changes in organizationalcapabilities. If team-based cultures are essential, humanresources practices must develop team competencies andsystems for managing them. If downsizing is necessary,human resource practices must emphasize and develop trustand empowerment to enable control without direct super-visory oversight. Talent practices must not only build the newcapabilities that are required, but do so in ways that con-tinues to support and consolidate earlier gains. This finding isquite different from simply making changes in the manage-ment hierarchy. Without consciously managing consistency,change can become a disconnected set of well-intentionedactivities, often at cross-purposes with one another, out ofsynch and non-cumulative. In 210 B.C. Petronius stated, ‘‘Wetrained hard, but it seemed that every time we were begin-ning to make progress, we would be reorganized. We tend tomeet any new situation by reorganizing, and what a wonder-ful method it can be for creating the illusion of progress whileproducing confusion, inefficiency, and demoralization.’’Managers in Loser companies live by these words. As a result,talented managers leave the firm and those that remain aredisengaged. It is also possible to rely too exclusively on theold top-down strategy-structure-control model that empha-sizes only strategic consistency. Successfully building firmcapabilities requires a more complex concept of consistency.Talent practices must support strategy, model the desiredend state, and enable earlier steps in building the capabil-ities critical to their success.


SELECTED BIBLIOGRAPHY

Some of these ideas have been presented in earlier works byWm. Joyce, N. Nohria and B. Roberson, What Really Works:The 4+2 Formula for Sustained Business Performance (NewYork: Harper Business, 2003) and Wm. Joyce, ‘‘What ReallyWorks: Building the 4+2 Organization,’’ OrganizationalDynamics, 2005 (spring), 118—129; Joyce, ‘‘What ReallyWorks: HR’s Role in Building the 4+2 Organization,’’ HumanResource Management Journal, 2005, 44 (1), 67—72; D. Leiand J.W. Slocum, ‘‘The Tipping Point of Business Strategy:The Rise and Decline of Competitiveness,’’ OrganizationalDynamics, 2009, 38, 131—147.

For work on culture and organizational performance, see J.Kerr and J. Slocum, ‘‘Managing Corporate Cultures ThroughReward Systems,’’ Academy of Management Executive, 1987, 1(2), 99—108; H. Trice and J. Beyer, The Cultures of WorkOrganizations (Prentice-Hall, 1993); and C. Jarnagin and J.Slocum, ‘‘Creating Corporate Cultures Through MythopoeticLeadership,’’ Organizational Dynamics, 2007, 36 (3), 288—302.

For work on strategy and talent management, see K. Ryan,‘‘Gilt Groupe’s CEO on Building a Team of A Players,’’ Harvard

Business Review, 2012 (January—February), 43—46; I. Tariqueand R. Schuler, ‘‘Global Talent Management: LiteratureReviews, Integrative Framework, and Suggestions for FurtherResearch,’’ Journal of World Business, 2010, 45, 122—133; E.Farndale, H. Scullion and P. Sparrow, ‘‘The Role of CorporateHR Function in Global Talent Management, Journal of WorldBusiness, 2010, 45, 161—168; B. Becker, M. Huselid and R.Beatty, The Differentiated Workforce: Transforming Talentinto Strategic Intent (Harvard Business Press, 2009); and Wm.Joyce and L. Hrebiniak, Implementing Strategy (New York:Macmillan, 1984).

For the book Moneyball, see M. Lewis, Moneyball: The Artof Winning an Unfair Game (New York: W.W. Norton &Company, 2003).

For more information on QuikTrip, see Y. Ton, ‘‘SomeCompanies Are Investing in Their Workers and ReapingHealthy Profits,’’ Harvard Business Review, 2012 (January—February), 125—131; and D. Hellriegel, and J. Slocum, Orga-nizational Behavior, 13th ed. (Masson, OH: Cengage Publish-ing, 2011), 77.

William F. Joyce is a professor of strategy and organization science at the Amos Tuck School of Business atDartmouth College. He has consulted extensively with organizations in the United States, Europe, and the Far East,specializing in strategy formulation and implementation, organization design and cultural change. He has servedas a principal consultant in strategy implementation and organizational design projects for AT&T, General Electric,Lockheed-Martin, Allied-Signal, Ciba-Geigy Pharmaceutical, 3M, Aetna, MetLife and various government agencies,including the EPA. His newest book, What Really Works: The 4+2 Formula for Business Success, was published byHarper Business. (Tel.: +1 603 646 2802; email: [email protected]).

John W. Slocum is Professor Emeritus at the Edwin L. Cox School of Business, Southern Methodist University. He hasconsulted for organizations such as Lockheed-Martin, Aramark, Allstate Insurance Company, Kimberly Clark, AAA,Celanese, Key Span Energy and University of North Texas Health Science Center, in the areas of cultural change,organization design, and managing teams. He is past president of the 19,000 member Academy of Management andco-author of 28 management books and more than 130 journal articles. He is associate editor of OrganizationalDynamics and co-Editor of the Journal of World Business and Journal of Leadership and Organizational Studies. Heserves on the board of directors of ViewCast Corporation and Kisco Senior Retirement Communities (Tel.: +1 214768 3157; e-mail: [email protected]).

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top management talent, strategic capabilities, and firm performance

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