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The Risky Business of Hiring Stars

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Abstract

With the battle for the best and brightest people heating up again, you're most likely out there looking for first-rate talent in the ranks of your competitors. Chances are, you're sold on the idea of recruiting from outside your organization, since developing people within the firm takes time and money. But the authors, who have tracked the careers of high-flying CEOs, researchers, software developers, and leading professionals, argue that top performers quickly fade after leaving one company for another. To study this phenomenon in greater detail, the authors analyzed the ups and downs of more than 1,000 star stock analysts, a well-defined group for which there are abundant data. The results were striking. After a star moves, not only does her performance plunge, but so does the effectiveness of the group she joins--and the market value of her new company. Moreover, transplanted stars don't stay with their new organizations for long, despite the astronomical salaries firms pay to lure them from rivals. Most companies that hire stars overlook the fact that an executive's performance is not entirely transferable because his personal competencies inevitably include company-specific skills. When the star leaves the old company for the new, he cannot take with him many of the resources that contributed to his achievements. As a result, he is unable to repeat his performance in another company--at least not until he learns to work the new system, which could take years. The authors conclude that companies cannot gain a competitive advantage or successfully grow by hiring stars from outside. Instead, they should focus on cultivating talent from within and do everything possible to retain the stars they create. Firms shouldn't fight the star wars, because winning could be the worst thing that happens to them.
... Additional factors include adopting emerging innovation, funding for projects, creating outstanding roles, building a relationship culture, adequate communication, promotion and provision of incentives, and, above all, recognition. The empirical findings of Saunderson (2010), Beesom (2009) and Groysberg et al. (2004) indicate that the expectations of potential academics must be regularly met to support their development. Furthermore, factors to support the development of high-potential academics, such as funding for research and academic papers, according to Groves (2007), must be constantly provided. ...
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... Prior studies indicate that trends are commonly used by employees and employers alike as the foundation for decision-making. For instance, high-risk personnel decisions are often informed by performance trends, such as exploiting the change of scenery effect to disrupt and restore employees' performance declines or investing financial resources to acquire high-risk high reward rising stars (Beechler & Woodward, 2009;Groysberg, Nanda, & Nohria, 2004;Rogers, Vardaman, Allen, Muslin, & Baskin, 2017). We analyze a sample of employees using latent growth modeling to shed light on this possibility. ...
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... Although early work in this area focused on impact in terms of statistical significance, one of the primary contributions of the utility analysis (UA) literature has been its focus on estimating effect sizes in practical terms (Brogden, 1949;Schmidt et al., 1979). More recently, the literature has focused specifically on the returns from investing in 'star' employees, that is, the highest performers (Aguinis & O'Boyle, 2014;Groysberg et al., 2004;Groysberg & Lee, 2008. While the literatures on UA and that on star employees have developed somewhat independently, they both focus on the same broad research question: Does variance in workforce performance make a difference, and if so, how big is the impact? ...
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Chapter
This volume brings together recent insights about the psychology of organizational change. The authors are leading scholars in the study of organizational change, taking on a micro-perspective for understanding the process through which responses to change emerge and impact work-related outcomes. Each chapter approaches the topic from a different perspective, highlighting a different aspect of the phenomenon. The book includes review chapters, chapters with new theoretical developments, and descriptions of empirical studies and their findings. It is intended for both academic and practitioners who wish to keep up to date about the mechanisms that explain how recipients of organizational change respond to and cope with change.
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