Confronting overconfidence in talent strategy, management, and development


Here is an excerpt from an article written by Tera Allas, Louis Chambers, and Tom Welchman for the McKinsey Quarterly, published by McKinsey & Company. To read the complete article, check out others, learn more about the firm, and sign up for email alerts, please click here.

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Best practices are well understood. But are companies following them as closely as their leaders claim?
Many leaders we encounter insist that their talent- and people-development strategies are sound—and that their organizations are good at implementing them. Is this confidence warranted, and are companies living up to their leaders’ assertions? Could these leaders be succumbing to the same optimism bias that motivates three out of four people to imagine that they are above-average drivers? The answers to these questions matter: companies with very effective talent management enjoy higher total returns to shareholders than less effective competitors do.  

The findings of a recent survey of 500 managers in the United Kingdom, part of a research project we conducted in collaboration with the Confederation of British Industry (CBI),  suggest that CEOs and HR leaders in particular may be taking a rose-tinted view. Asked to evaluate 21 generally accepted talent practices—in areas ranging from recruitment, employee engagement, and talent strategy to talent development and team efficiency—56 percent of survey respondents said that their organizations have adopted no fewer than 16 good practices. More than one-quarter said their companies have adopted all 21. (For more, see sidebar, “Twenty-one best practices.”)

When we looked at the responses by role, we noticed that CEOs and HR leaders appeared more bullish than the other managers: 64 percent of both HR leaders and CEOs said their companies were high adopters (deploying 16 or more of the practices), but only 42 percent of all other respondents in our survey agreed. Similarly, CEOs and HR leaders were less likely than the others to say their companies were low adopters (See Exhibit 1).

Corporate leaders also appeared optimistic about specific talent practices. CEOs, for example, were two times more likely than other respondents to say their companies excelled at “know[ing] who the best people are and put[ting] them to work on the most important business priorities.” And they were also nearly twice as likely as others to say that managers and leaders at their companies “are evaluated against their people performance, not just their business performance.”

Take stock, make changes

Taken together, our findings suggest that many companies in the United Kingdom (and beyond) should take a close look at their talent practices, particularly as the more demanding and diverse millennial generation comes of age. Workers are paying attention: a 2018 survey found that poor management was the top reason UK employees weren’t happy in their current roles. And British workers are hardly alone: comparable studies in the United States suggest that employee dissatisfaction with the company’s leadership is commonplace.  

The path to improvement for companies anywhere, we find, starts with soul-searching, as well as recognizing that the view from the middle of an organization may be less sanguine than the view from the top. Leaders must be prepared to deal with what they learn from employee surveys or external benchmarking exercises. A real commitment to talent can’t be built through half measures or, worse, faked. As one survey respondent put it, if verbal messages are “not backed up by [leadership] actions . . . then you can’t expect HR to think it’s a priority. In order for a good practice to be implemented . . . the senior leadership team have to genuinely want it to succeed.”

If companies in the UK moved up just one decile in people performance relative to their peers, the resulting boost in labor productivity would be worth £110 billion.

Elevating people leadership on the management agenda often requires elevating the chief human-resources officer (CHRO) or the most senior person in charge of talent if the role goes by another name. At a minimum, the person who holds it should report to the CEO and be accountable for organization-wide talent priorities linked to tangible business objectives. The board, which often becomes involved in succession planning, can also do much more to review and advise on the organization’s talent performance.

As our colleague Dominic Barton and his coauthors noted in Talent Wins, CEOs in some talent-oriented organizations insist that the CHRO and CFO be part of a core strategic inner circle that drives people strategy. Our research, highlighting a disconnect between the organization as a whole and the perceptions of CEOs and HR leaders, suggests that moving to such a model also will require a mind-set shift.

McKinsey has long emphasized the positive relationship between a company’s organizational health—including people practices—and its performance. The upside potential is considerable. For the United Kingdom, our research found that if companies moved up just one decile in people performance relative to their peers, the resulting boost in labor productivity would be worth £110 billion, or 9 percent of the UK’s nonfinancial business economy. At the very least, as the UK-based multinational has found, better practices improve employee engagement and boost productivity in a tangible way.

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Here is a direct link to the complete article.

Tera Allas is a director of research and economics at McKinsey and is based in McKinsey’s London office, where Louis Chambers is a consultant and Tom Welchman is an associate partner.The authors wish to thank Jennifer Beckwith, Pip Kindersley, Naba Salman, and Doron Seo for their contributions to this article.


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