Why Do We Chase Stars?

How many times have you seen this happen? An organization seeking to make a senior management change goes after an outsider with a reputation for, and record of, high performance. It pays a premium, thereby disrupting its compensation scheme and discouraging promising internal talent that isn't considered quite ready for the job. Then the outsider fails to perform up to (probably inflated) expectations, and the staffing process starts again.

Is this the exception or the rule, we ask ourselves? In his new book Chasing Stars: The Myth of Talent and the Portability of Performance, Harvard Business School professor Boris Groysberg seeks to find out answers to the question.

Groysberg studied what he calls "the portability of performance," and reaches conclusions that might give pause to many who chase stars. His subjects are top investment analysts (as identified annually by Institutional Investor magazine) and the organizations that develop and hire them away from each other. His analysis is based on a large base of data for 1988 through 1996. It includes ratings before and after an analyst's transfer from one investment bank to another, as well as the results of extensive interviews over several years of study.

Among other things, he found that "star analysts who switched employers paid a high price (in performance, not compensation) for jumping ship relative to comparable stars who stayed put…" (The same might be true for their employers as well.) But he emphasized that the more appropriate question is, "Which stars are portable under which circumstances--and why?"

For those firms hiring stars, Groysberg says his evidence "strongly suggests the wisdom of hiring from firms with similar orientations … and lesser or equivalent quality," from firms that are less "resource-rich" than one's own, and with every effort made to redress the asymmetry in information and inadequate due diligence that almost always accompanies hiring from outside. (The italics are mine.) He suggests that every effort should be made to avoid the "winner's curse" of overbidding to get talent without a clear picture of how that talent fits into a longer-term strategy.

Recognizing the narrow focus of his sample, Groysberg extended his inquiry to 20 General Electric top executives who moved to top positions in other companies. He concluded that those who "took over, built, or implemented management systems that resembled GE's were more successful," while "those who went to different industries, those who moved solo (rather than with a team), and those who joined companies whose needs (exploiting existing business opportunities as opposed to exploring new business opportunities) called for different skills performed poorly."

The study triggers a number of issues for us to consider. For example, to what extent does it raise questions for those who argue that general management performance is highly portable? If it isn't portable, at least under many conditions, what does this say about the associated thesis that management is a profession? Or what about the notion of the newly hired, high-performing CEO as an important key to a turnaround? Can a study of investment analysts do much more than suggest hypotheses for the study of general management and governance? How "portable" are its findings? Why do we chase stars? What do you think?