FASCINATING ARTICLE OF THE MORNING: Rapmaster hips us all to this Malcolm Gladwell piece in the New Yorker called The Talent Myth, on why hiring the best and brightest to run your company is going to bite you in the ass in the end. Gladwell is writing about Enron in particular, and their relationship with the management consulting firm McKinsey & Company:

McKinsey wanted to document how the top-performing companies in America differed from other firms in the way they handle matters like hiring and promotion. But, as the consultants sifted through the piles of reports and questionnaires and interview transcripts, they grew convinced that the difference between winners and losers was more profound than they had realized. "We looked at one another and suddenly the light bulb blinked on," the three consultants who headed the project—Ed Michaels, Helen Handfield-Jones, and Beth Axelrod—write in their new book, also called "The War for Talent." The very best companies, they concluded, had leaders who were obsessed with the talent issue. They recruited ceaselessly, finding and hiring as many top performers as possible. They singled out and segregated their stars, rewarding them disproportionately, and pushing them into ever more senior positions. "Bet on the natural athletes, the ones with the strongest intrinsic skills," the authors approvingly quote one senior General Electric executive as saying. "Don't be afraid to promote stars without specifically relevant experience, seemingly over their heads." Success in the modern economy, according to Michaels, Handfield-Jones, and Axelrod, requires "the talent mind-set": the "deep-seated belief that having better talent at all levels is how you outperform your competitors."

It's the McKinsey connection to Enron that Gladwell is exposing here, and it's such a great angle; obviously we'll have to see if something similiarly McKinsey was going on in WorldCom and Tyco to see how far we can take this, but the business and non-business anecdotal evidence is pretty convincing:

Throughout most of 1942, the Navy kept trying to act smart by relying on technical know-how, and stubbornly refused to take operational lessons from the British. The Navy also lacked the organizational structure necessary to apply the technical knowledge it did have to the field. Only when the Navy set up the Tenth Fleet—a single unit to coördinate all anti-submarine warfare in the Atlantic—did the situation change. In the year and a half before the Tenth Fleet was formed, in May of 1943, the Navy sank thirty-six U-boats. In the six months afterward, it sank seventy-five. "The creation of the Tenth Fleet did not bring more talented individuals into the field of ASW"—anti-submarine warfare—"than had previous organizations," Cohen writes. "What Tenth Fleet did allow, by virtue of its organization and mandate, was for these individuals to become far more effective than previously." The talent myth assumes that people make organizations smart. More often than not, it's the other way around.

There is ample evidence of this principle among America's most successful companies. Southwest Airlines hires very few M.B.A.s, pays its managers modestly, and gives raises according to seniority, not "rank and yank." Yet it is by far the most successful of all United States airlines, because it has created a vastly more efficient organization than its competitors have. At Southwest, the time it takes to get a plane that has just landed ready for takeoff—a key index of productivity—is, on average, twenty minutes, and requires a ground crew of four, and two people at the gate. (At United Airlines, by contrast, turnaround time is closer to thirty-five minutes, and requires a ground crew of twelve and three agents at the gate.)

In the case of the giant retailer Wal-Mart, one of the most critical periods in its history came in 1976, when Sam Walton "unretired," pushing out his handpicked successor, Ron Mayer. Mayer was just over forty. He was ambitious. He was charismatic. He was, in the words of one Walton biographer, "the boy-genius financial officer." But Walton was convinced that Mayer was, as people at McKinsey would say, "differentiating and affirming" in the corporate suite, in defiance of Wal-Mart's inclusive culture. Mayer left, and Wal-Mart survived. After all, Wal-Mart is an organization, not an all-star team. Walton brought in David Glass, late of the Army and Southern Missouri State University, as C.E.O.; the company is now ranked No. 1 on the Fortune 500 list.

Yes, Wal-Mart was allowed to become the Wal-Mart we all know and love (I actually love Target, it's less overwhelming, neater, and they sell cool boxer shorts with pictures of Popeye and Captain America on them) by not relying on star power-equals-success deal. Which sounds in some ways like a gifted-and-talented program for MBAs:

What the War for Talent amounts to is an argument for indulging A employees, for fawning over them. "You need to do everything you can to keep them engaged and satisfied—even delighted," Michaels, Handfield-Jones, and Axelrod write. "Find out what they would most like to be doing, and shape their career and responsibilities in that direction. Solve any issues that might be pushing them out the door, such as a boss that frustrates them or travel demands that burden them."

That's right, coddle them like they were basketball prodigies or something--not that you should be coddling basketball prodigies, now that I think of it. Or anybody else. Anyhow, Gladwell gets deeply psychological at one point and gets me all inspired to blog about it:

Carol Dweck, a psychologist at Columbia University, has found that people generally hold one of two fairly firm beliefs about their intelligence: they consider it either a fixed trait or something that is malleable and can be developed over time. Five years ago, Dweck did a study at the University of Hong Kong, where all classes are conducted in English. She and her colleagues approached a large group of social-sciences students, told them their English-proficiency scores, and asked them if they wanted to take a course to improve their language skills. One would expect all those who scored poorly to sign up for the remedial course. The University of Hong Kong is a demanding institution, and it is hard to do well in the social sciences without strong English skills. Curiously, however, only the ones who believed in malleable intelligence expressed interest in the class. The students who believed that their intelligence was a fixed trait were so concerned about appearing to be deficient that they preferred to stay home. "Students who hold a fixed view of their intelligence care so much about looking smart that they act dumb," Dweck writes, "for what could be dumber than giving up a chance to learn something that is essential for your own success?"

In a similar experiment, Dweck gave a class of preadolescent students a test filled with challenging problems. After they were finished, one group was praised for its effort and another group was praised for its intelligence. Those praised for their intelligence were reluctant to tackle difficult tasks, and their performance on subsequent tests soon began to suffer. Then Dweck asked the children to write a letter to students at another school, describing their experience in the study. She discovered something remarkable: forty per cent of those students who were praised for their intelligence lied about how they had scored on the test, adjusting their grade upward. They weren't naturally deceptive people, and they weren't any less intelligent or self-confident than anyone else. They simply did what people do when they are immersed in an environment that celebrates them solely for their innate "talent." They begin to define themselves by that description, and when times get tough and that self-image is threatened they have difficulty with the consequences. They will not take the remedial course. They will not stand up to investors and the public and admit that they were wrong. They'd sooner lie.

Great stuff. And I only excerpted about half of it so go read the whole thing. Thanks, Rapmaster!