The Search for the Young and Gifted

Why talent counts

By John Byrne
With Andy Reinhardt and Robert D. Hof in San Mateo, Calif.
Business Week

October 4, 1999

For companies on the cusp of the Internet Age, the resource in shortest supply is neither raw material nor capital, neither powerful technology nor new markets. What keeps managers up nights at these companies is the scarcity of brainpower, the talent to give wings to visions of a future that becomes the present at the speed of light. "Capital is accessible, and smart strategies can simply be copied," says Ed Michaels, a McKinsey & Co. director. "The half-life of technology is growing shorter all the time. For many companies today, talented people are the prime source of competitive advantage."

People bring imagination and life to a transforming technology. They bring success and profit to simple and complex ideas. Or, as Dell Computer Corp. (DELL) Vice-President Theresa Garza puts it, they bring "hum." Not the whirling white noise emanating from your computer, but the very tangible sense of fully engaged people, channeling unbounded energy into their work. "You know it as soon as you enter a building," says Garza, general manager of Dell's large corporate-accounts group. "You can tell when a company feels dead just by walking through its halls. We try to create the hum. It's people who have momentum, who are working hard, and who are excited to be here."

To get hum, Garza has flung herself onto Velcro walls and had fellow employees dunk her in a water tank--all in the name of generating enthusiasm and encouraging accessibility. It's a far cry from IBM (IBM) founder Thomas Watson sitting with his hands folded behind a "Think" sign in a library with Old World overtones. But those two images are emblematic of the vast differences between the enterprises that will define the Internet Age and the companies of previous eras.

Watson and earlier chieftains constructed organizations that were models of order, logic, and conformity, the latter best symbolized by the white shirts and stiff collars every IBM salesman had to wear. The hierarchy and bureaucratic protocol that were the hallmarks of those corporations were crucial to success in an age when change came slowly and markets were largely domestic.

Today, Watson's "Think" motto contrasts with Andrew S. Grove's notion that "only the paranoid survive." Why? Invincibility, as the stumbles of many once-successful corporations have shown, breeds arrogance and insularity. As CEO of Intel Corp. (INTC), Grove showed that the "paranoid" are not going to take for granted their customers, markets, or employees.

Today's managers recognize that flat organizations of empowered people are critical to gaining quick decisions in a global marketplace that moves at Net speed. The lone corporate soldiers, often second-guessed by layers of managers who policed decision-making, have been replaced by teams of people with the autonomy of small-business owners. Internet Age companies rely on the initiative and smarts of individual employees to foster decisions that are closer to the customer and therefore more responsive to the market. The ultimate goal, says CEO Jorma Ollila of Finland's telecom giant Nokia, is "flexibility, an open mind, and transparency of organization."

How do the smart companies get it? They restore meaning to the Dilbert-scorned rhetoric that "people are our most important assets." The best of the Internet Age breed, from America Online (AOL) and DoubleClick (DCLK) to Cisco Systems (CSCO) to Federal Express (FDX), are rewriting the rules of intellectual capital--setting new standards for how to attract, cultivate, and retain talent in an era in which people matter more than ever. And they're using the Net to transform the care and feeding of human assets and to transcend traditional boundaries.

Consider Ltd., a year-old software company that is nominally based in Mountain View, Calif. Alan J. McMillan, the 37-year-old founder and CEO, is a Canadian who had been working in Hong Kong. The company's product was written by a software team in Croatia. The vice-president for technology is Russian, while the VP of international sales is a German living in Tokyo. They use the Internet--in fact, their own product--to collaborate across borders. "We live and breathe the Internet," says McMillan.

In this new environment, the most successful companies are endowing entry-level employees with the reverence once accorded only to customers. They are working to fulfill the desire for meaning and belonging by creating egalitarian meritocracies. And they are paying generously for performance, not only with cash, but with ownership. As Cisco Systems Inc. CEO John T. Chambers puts it: "The New Economy is heavy on intellectual capital. The sharing of knowledge is what really makes it go. In the New Economy, you expect lifelong learning, not necessarily lifelong employment. People used to work for wages. In the New Economy, they work for ownership. Security comes from the stock. Labor often fought management in the Old Economy. Today, teamwork and empowerment are crucial to success."

More Passion. In short, the world economy is going through a seismic shift to intellectual capital from capital investment. That's why computer mogul Michael S. Dell made people No. 1 on his top 10 list of priorities to executives earlier this year. And at a company adding more than 8,000 people this year to its 29,000 employees, the talent must be hired and developed fast. Inc. (AMZN), the company that is synonymous with the Internet way of doing business, understands the imperative all too well. "The thing that has constrained us for the last four years has always been people bandwidth," says Amazon CEO Jeffrey P. Bezos. "Just having enough smart, hard-working, talented, passionate people to execute against our vision."

To glimpse this changing world, visit some of the companies that are charting new territory. Begin in a New York City area known as "Silicon Alley." In the basement of a nondescript building on Madison Avenue, some 30 new employees of Net advertising pioneer DoubleClick Inc. are gathered for the first day of a week-long orientation called "ClickerCamp."

DoubleClick would not exist without the Net. It sells online advertising for Web sites, then constantly delivers the ads to viewers who fit the profile of advertisers' prospective customers. DoubleClick can direct ads to Web users within milliseconds of their checking into a Web site. The company's revenues rose 162% last year, to $80 million.

In this windowless room, the twenty- and thirtysomething recruits, just a fraction of the hundreds DoubleClick will add this year, have a couple of things in common. The vast majority have left more conventional environs such as American Express (AXP), Mobil Oil (MOB), Time Warner (TWX), Andersen Consulting, and Saks Fifth Avenue (SKS). What is more surprising is that over half were hired because they know someone at DoubleClick. The company, which gets 20% of its employees via the Net, believes that referrals sharply reduce mis-hires.

After the coffee and pastry preliminaries, ClickerCamp starts with CEO Kevin O'Connor, 38, an engineer who founded the company after several years with a software outfit that had purchased his earlier startup. With employment nearing 1,000, O'Connor and his management team insist that every new recruit, from the New York receptionist to the new salesperson in Paris, knows how crucial he or she is to the company's success. "Every company makes the customer a priority," says Kevin P. Ryan, DoubleClick president. "Not every company makes their people and their culture priorities. We do. It's more important that I take care of our employees than our customers."

Before the week is out, O'Connor and other leaders will engage the recruits in a game of Lazer Tag and join them for drinks at a nearby bar. "We try to do everything we can to bring people together," says Ryan. "When you bring together 30 people who enjoy jazz or skiing, the company becomes part of the social fabric of a person's life."

Explosive. The class, however, is strictly business. O'Connor articulates the company's goals and strategy and serves up enough inspiration to ready an army for battle. "We are making history," he says. "We are building a great company in an explosive industry. This is the fastest-growing trend in history. It beats fire, the wheel, the telephone and television, cell phones. Nothing has touched so many lives so quickly. We're going to do some incredible things here." Before leaving, he fields questions and gives out his home telephone number.

By the time ClickerCamp is out, all of the senior managers will have fulfilled their duty to appear. After all, every employee is asked annually to rate his or her manager on 25 criteria. The ratings answer two key questions: Did managers hire good people? Did their employees like working for them? ''Most organizations focus only on the results. But if you do the first two, I know the results will happen," says Ryan.

Like DoubleClick in New York, Dell Computer Corp., just outside Austin, Tex., puts a laser focus on speed and teamwork. "There's a tremendous velocity to business here," says Jay Martin, 28, a planning manager who joined Dell last year after earning his MBA from Duke University. "You make decisions every day without 100% of the information, and you have to be comfortable doing that. Every Sunday night, I look forward to Monday morning. I don't think there could be a stronger endorsement."

Finding people like Martin is an all-consuming priority at Dell. Recruiters start with substantial research on what it takes to succeed. Besides confirming the necessary functional or technical skills, managers test applicants for their tolerance of ambiguity and change and their capacity to work in teams and learn on the fly. At the VP level, candidates are sent to a consultant for a lengthy behavioral interview and extensive pencil-and-paper testing. "It is a high-risk, high-reward environment," says Andy Esparza, vice-president for staffing. "We have to screen for people who can thrive in that kind of culture." Even when growing at hyperspeed, hiring just to fill seats won't do, says Esparza: "Short-term decisions or compromises you make today in the interests of getting something done will cost you later on."

Once hired, you don't just settle in at Dell. To assure quick assimilation, every new employee is given specific performance goals to reach in the first 30 days. Informal and formal buddy systems pair newbies to vets. Executives host informal monthly chat sessions with small groups of managers to mentor them along.

If all goes well, Theresa Garza, who leads the 600-employee large corporate-accounts group, can create the "hum" she talks about. Her goal is a function of leadership and organizational culture. It demands clear communications. In the first two weeks of a quarter, Garza will articulate her group's objectives on five different occasions. Every leader will have heard the message at least three times. Why? "People get frustrated when they are not on the same page," she says. "When everyone has the same agenda, it breaks down frustration and politics."

Odd Outfits. Fun, says Garza, is another key ingredient. She has shot off a gun in a magician's show trick, belted out a tune on stage, and dressed up in odd outfits to inspire the troops. "Humiliation," laughs Garza, "is a great motivator. It makes executives more approachable, and it's just fun, and people like it."

Fast growth, meantime, helps keep people engaged and emotionally committed. Every quarter, Garza hires 10% to 15% of her 600 employees from outside Dell. An additional 8% to 10% are promoted or put into "stretch" assignments for further development.

Move west to Cisco Systems in San Jose, Calif., and you'll find one of the most enterprising acquirers of talent in the world. Cisco, which provides switches, routers, and other plumbing for the Internet, recruits people in the most hotly competitive talent market in the world: Silicon Valley. Besides the more typical use of job fairs, Cisco has recruited at the Los Altos Wine & Art Festival and the Santa Clara Home & Garden Show. The company has even parked a mobile billboard alongside a congested freeway, suggesting to weary drivers that they could cut their commutes by working for Cisco.

Mostly, though, the company has aggressively employed the Net to draw talent. After all, the Internet is clearly a self-selecting environment for the kind of people Cisco wants. So Cisco runs banner ads on dozens of Web sites, from Scott Adams' Dilbert site to Travelocity. By using DoubleClick's technology, Cisco ads pop up for people surfing the Web from specific addresses, including its leading rivals, says Michael McNeal, Cisco's employment director.

As many as 70% of the 20,000 resumes Cisco receives monthly arrive in digital form. And only one of every four is ever read by a person. Cisco software screens resumes for key words. The company plans to refine the process by textually analyzing the resumes of successful hires, then using that knowledge to screen incoming resumes more efficiently.

Cisco's staff of 100 recruiters eventually winnow the number of applicants for each job down to three to five so managers can interview them. "The irony of Internet recruiting is that it can actually be more interactive and personalized than the old paper-based way," says Barbara Beck, senior vice-president for human resources. Cisco's goal is to hire people quickly after they apply--in effect, grabbing them while they are hot.

Cisco is a prime example of another defining characteristic of the Internet Age: adding brainpower by takeovers. Some companies acquire others to increase market share and build economies of scale. Cisco, with annual sales of $12 billion, has grown tenfold in five years, in part through some 30 acquisitions, many of them rich in talent. One of every four employees arrives via acquisition. "The key to our success is understanding that we are acquiring people, not technology," says Donald J. Listwin, executive vice-president. "Technology is moving so quickly that the products are dead in 18 months. So it's important to give people in acquired companies bigger jobs, not smaller jobs."

They work in a culture informed by the mistakes of more traditional companies. A former IBMer, CEO Chambers was sometimes expected to fetch a soda or carry the bags of a superior. "I won't ask anyone to carry a bag for me," he says. "You never ask your team to do something you wouldn't do yourself.''

You share time and money with them, too. Once a month, Chambers holds court at a breakfast for employees whose birthdays fall that month. Stock options, moreover, are generously parceled out as an enticement and a retention tool. All employees get options on stock, which has risen more than 135% in the past 12 months.

One result: Cisco's turnover is extraordinarily low--just 6.7% per year in an industry with typical rates of 18% to 28%. Yet about half of Cisco's turnover rate is involuntary, a result of the company's policy of annually trimming the bottom 5% of its staff. "The decision of who to let go has nothing to do with length of service or level," says Beck. "It's 'are you adding value?' or 'do you fit the culture?'"

Head back east, to Memphis, and Federal Express Corp.'s sprawling headquarters. The overnight delivery company, which hired 34,300 people last year, boasts a turnover rate for management and full-time salaried employees of a mere 4%.

How does FedEx keep turnover so low? Hiring practices that echo Dell and Cisco are just the start. FedEx also assiduously develops its homegrown talent, largely through a commitment to continuous learning. FedEx may be the ultimate corporate university. "One reason people like to work here is that they just don't come in with a set of skills that stay stagnant," says Larry McMahan, vice-president for human resources. "We believe heavily in individual development. We have extensive training."

FedEx plows 3% of total expenses into training, six times the proportion at most companies. And other companies typically spend the lion's share of training funds on managers. At FedEx, front-line and second-level managers must attend 10 to 11 weeks of mandatory training in the first year. Tens of thousands of employees from couriers to top executives have gone through the Leadership Institute just outside Memphis. Weeklong courses drill people in the company's culture and operations. Bonding exercises include blindfolded games of basketball, where participants must rely on coaches without blindfolds to find the goal. The training is a critical component of the company's open and progressive environment. "What attracted me was FedEx' intensity and passion toward creating new kinds of business," says David Roussain, a former Hewlett-Packard Co. manager who joined FedEx as vice-president for e-commerce and customer service in January. "FedEx is an action-oriented company."

The Net helps. "An unbelievable amount of decisions are made over e-mail," says Roussain. "It tends to push issues faster and quicker and allows for a freer exchange of opinions. It is also a safe environment to raise issues." When the company's service reps recently griped that they wanted more latitude to solve customer problems, the company invested in new networking systems to give the reps the additional information they needed to make decisions.

A small step, perhaps. But it's one of many that bespeak the initiative, fast response times, and bureaucracy-busting that help to define the Internet Age. Watson's goal of getting his employees at IBM merely to "Think" is now a given, if not a starting point, toward getting the best people to work smarter in an ever more challenging epoch.

Copyright 1999, by The McGraw-Hill Companies Inc. All rights reserved.