Business Exposed148
improve the quality of decision-making (however, often at the
price of slowing it down). Yet, hiring a consultant is of course
no reason to stop thinking for yourself. As Richard Dawkins said,
“It is good to be open-minded, but not so open that your brain
falls out.”
Star knowledge workers – you really should not pay
them that much, you know
Talking about brains, why do we pay certain employees so much?
“Duh, because they make us a heck of a lot of money!” you
might say. Sure, that may be true, but I guess that’s not enough.
When a team of ve salespeople earns you $7 million, you might
pay them $100,000 each. But when a team of ve consultants,
attorneys, or security analysts makes you $7 million, you often
end up paying them $1 million each! And why do we do that?!
Perhaps because their skills are more specialized and scarce and
if they walk out of the door we’d have a hard time replacing
them? Sure, that may be true, but I guess that’s not enough
either. Because if we had a highly specialized sales team, with
technical knowledge perfectly attuned to our particular product
range, we would likely still not pay them $1 million each,
although we’d have a hard time replacing them if they left.
And that’s because they too would not nd it easy to nd a
replacement job. Their skills are so specialized, attuned to our
particular product, that they would not be able to make the
same kind of money for any other company, and hence would
be much less valuable anywhere else, to anyone else. Nope, we
don’t have to pay them that much to keep them; they don’t
have anywhere else to go!
But the consultants, attorneys, and security analysts do. They
can just take their Rolodex, their les, their client base and
expertise with them, and stroll into the ofce and payroll of our
competitor, and earn them the same $7 million, right?
Well . . . maybe not. We often think they can just “take it with
them”; they think that they can just take it with them, and our
1496
n
Myths in management
competitor usually thinks they can just take it with them. But
often we’re all wrong.
For example, Professor Boris Groysberg, at the Harvard Business
School, examined the portability of star security analysts’
performance. Security analysts, as you may know, are employed
by investment banks to analyze companies in a particular
industry. They, among others, produce earnings forecasts, buy
and sell recommendations, and detailed reports on individual
companies. If they’re any good – because they, for instance,
produce quite accurate earnings forecasts – they can easily take
home several million in salary and bonuses per year. Yes really.
Investment banks pay them so much because they think they
can easily take their skills, nancial models, industry contacts,
etc. to a different bank if they wanted to, and analyze the same
sectors and companies. However, Boris found that that is actually
not as simple as it seems . . .
He analyzed the performance of 316 top-ranked security
analysts who switched rms, using rankings published by the
Institutional Investor All-America Research Team poll. He found
that star analysts who switched employers immediately experi-
enced a signicant decline in their performance. The effect was
substantial. For example, the chance that a particular analyst
would come out top of his sector’s league table (having made
the most accurate forecasts, etc.) would drop by 50 percent if he
had just switched rms. Actually, on average, it would take such
an analyst ve years to recover and make up for the switch and
subsequent drop in performance.
Hence, even security analysts, whose work seems highly
individual and not at all dependent on the particular organi-
zation that they work for, experience a very signicant decline
in their performance when they switch rms. Apparently, the
soft stuff, such as the intellectual capital imbedded in the fabric
of the organization, their relationships with colleagues, and
all sorts of other social and tacit processes (which are difcult
to identify, observe, or even name!) play a huge role, even
in the work of such star performers. Take them out of their
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