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The War for Talent
Organization and Leadership Practice McKinsey & Company
April 2001
© Copyright McKinsey & Company, Inc. 2001
In today’s knowledge economy, the caliber of a company’s talent increasingly determines success in the marketplace. The War for Talent
In 1997, McKinsey & Company coined the term “the war for talent” as the name for our original research on talent management practices and beliefs. We soon realized we had named a phenomenon that many people had been experiencing, but that had not really been captured before. This phrase has reverberated throughout the business world ever since. In 2000, we completed a second round of surveys and case-based research to update our initial findings. In total, we have now surveyed 13,000 managers at 112 large U.S. companies. Having great managerial talent has always been important, but now it is critical. In today’s competitive knowledge-based world, the caliber of a company’s talent increasingly determines success in the marketplace. At the same time, attracting and retaining great talent is becoming more difficult, as demand for highlyskilledpeopleoutstripssupply. The war for talent will persist for at least the next two decades. The forces that are causing it are deep and powerful. The war for talent is a business reality. A few companies are realizing this and are revolutionizing their approach to talent management. Most aren’t yet out of the starting blocks. We hope our findings will help spur them to action. The Stakes are High

We have progressed from the Industrial age to the Information age. The value of hard assets has declined relative to the value of a company’s intangible assets – assets such as proprietary intellectual capital, winning brands, and innovative ideas. Underpinning all of these intangibles is talent. And better talent is what will separate the winning companies from the rest. We have found repeatedly that having strong talent in key positions creates huge improvements in performance. For instance, in a manufacturing company, we found that the best plant managers grew profits 130% while the lowest perform- ing managers achieved no improvement. In an industrial services company, the best center managers grew profits 80% while the lowest performers achieved no improvement. And our study of portfolio managers in a financial services institution showed that top performers grew revenues by nearly 50% while average performers’ portfolios remained flat. The potential for value creation extends beyond the level of individual performance differentials. Companies that recognize the strategic importance of talent and manage their businesses accordingly stand to reap very large rewards. The companies in our survey that excel in talent management achieved total returns to shareholders that were 22 percentage points better than the average 1

Figure 1
in their industry. Not 22 percent better, 22 percentage points better. Compounded over several years, the difference in wealth creation is huge indeed. While many factors drive returns to shareholders, these data provide compelling evidence that better talent management causes better performance. The War for Talent Will Persist, and Companies Are Not Prepared At the same time, the market for talent is the most competitive it’s been in decades. Demand for business leaders and other highly skilled workers is growing rapidly in response to the unprecedented opportunities – and challenges – Better Execution on Talent Imperatives Is a Major Driver of Value Creation Percent total return to shareholders over and above peer group average 22.4

While many factors contribute to shareholder returns, talent is certainly one of them. Top “talent imperative” performers
0.9
Bottom ”talent imperative” performers
Source: McKinsey & Company’s War for Talent 2000 Survey
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72% of managers say that winning the war for talent is critical, yet only 9% are confident that their current actions will lead to a...
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