Organizational Dynamics (2012) 41, 183—193
Available online at www.sciencedirect.com
journal homepage: www.elsevier.com/locate/orgdyn
Top management talent, strategic capabilities,
and firm performance§
William F. Joyce, John W. Slocum
How many times have you overheard senior leaders say, ‘‘Our
people are our most important asset?’’ You have probably
heard this proclamation more than a thousand times. Accord-
ing to Gilt Groupe’s chief executive officer (CEO) Kevin Ryan,
most companies really don’t act that way, but senior man-
agers still make the statement. He offers this simple test: Ask
the CEO if he or she spends more time on recruiting and
managing people than any other function. Most would say
that recruiting and managing people falls somewhere in their
To Do List, but not at the top. Senior managers and readers of
the popular business press undoubtedly would agree with
Ryan’s assertion. Many of the managers who argue that people
are their most important asset also offer a compelling ratio-
nale for winning the war on talent. Unfortunately, the place of
talent on their to-do list is not consistent with these state-
ments. The truth is that executives are the key assets that
bring all other functions into play, and their effort in building
and sustaining talent is critical. According to Albert Black, CEO
of On-Target, a logistics firm, ‘‘There is Darwinism taking place
in our company. No longer are we out there hoping that good
people will find a reason to work for us. We must improve our
talent in here if we are to stay competitive.’’
Significant investments have been made in talent in many
organizations, in the form of new leadership development
programs or programs that emphasize becoming an employer
of choice. But despite all of these programs and rhetoric,
many organizations fail to capitalize on the opportunity for
strategic success that a talented management team can bring
to their organization. Oftentimes these programs focus on
§ formance across both industries and firms. These capabilities
Portions of this paper were presented at a Prudential Seminar in
Singapore, February, 2012. The authors would like to thank Todd
Diener, Don Hambrick, Sue Hammond, Mike Harvey, Don Hellriegel,
Andrew Hiduke, Ellen Jackofsky, Chip Jarnagin, David Lei, Jack
Kennedy, Maribeth Kuenzi, and Jake Sagehorn for their suggestions
and constructive comments on this paper.
0090-2616/$ — see front matter # 2012 Elsevier Inc. All rights reserved.
doi:10.1016/j.orgdyn.2012.03.001
management competencies and insights that have a ‘‘soup du
jour’’ quality: Six-sigma and Black Belts in the 1990s, Inter-
net-driven technologies in the early part of the past decade
and the leadership approaches consonant with newly discov-
ered or refurbished concepts from the past, such as authentic
leadership, management by walking around, etc. As a result,
these programs’ effectiveness is difficult to assess in terms of
ROI (return on investment), since often they teach general
competencies that attempt to reach a broad executive audi-
ence. Further, at the first sign of trouble, many organizations’
initial reaction is to downsize the workforce, thereby risking
serious impact on their organization’s effectiveness. Jack
Welch, former CEO of General Electric, has stated that in
difficult times you need more rather than less focus on talent
management and training than in good times. Although it
remains one of the most intriguing areas of human resource
management, talent management is also at the nexus of
strategic management — since executive leadership and
attaining the best fit between people and organization strat-
egy demands a long-term perspective. One of the most
important fundamental questions for managers is: ‘‘Given
our firm’s unique strategic situation, what must be done to
manage talent to achieve high levels of performance?’’ As
one can imagine, a number of different factors come to bear
on how best to answer this question.
FIRM CAPABILITIES AND FINANCIAL
PERFORMANCE
Firm capabilities are the key determinants of financial per-
embody those collective insights, knowledge and activities
that directly translate a firm’s vision and mission into the
concrete action steps that produce financial results. Collec-
tively, capabilities convert desired goals into realized out-
puts, such as financial performance and competitive
184
strength. Capabilities represent firm-specific assets that
require continuous investment to maintain a firm’s competi-
tiveness. Determining precisely how and what types of cap-
abilities impact financial performance has proven difficult.
We believe that many of the problems can be traced to a few
core causes.
First, senior level managers’ knowledge about strategy
and talent resides in different silos. CEOs often spend more
time with their chief financial officers (CFOs) and vice pre-
sidents (VPs) of marketing than with the VP of human
resources (HR). If the HR role is truly strategic, that role
demands time and attention. Management of talent must be
understood in the context of the firm’s strategic capabilities.
Yet senior managers have remained too inward looking, often
adopting a ‘‘one size fits all’’ perspective. They have failed to
align their organization’s capabilities with their strategic
needs and opportunities, thus misallocating and wasting
managerial talent. Strategy involves building on distinctive
resources and creating hard-to-initiate value propositions for
customers. Strategy is concerned with distinction and build-
ing unique sources of competitive advantage through value
creation. Thus, does it make sense to treat talent manage-
ment as an undifferentiated product? Building competitive
advantage means that an organization’s talent needs to be
differentiated in the same manner, with a unique array of
activities and initiatives.
Second, effective business strategies differentiate a com-
pany in ways that add customer value, and competitors
cannot easily copy. Talent management has the potential
to create value through improved strategy execution. Talent
cannot easily be copied by competitors. In Michael Lewis’
best-selling book Moneyball, the Oakland Athletics devel-
oped a novel and stealth talent management system that
enabled them to win games. The Athletics developed a
differentiated strategy for winning by acquiring talent
(players) that other clubs didn’t value. In the business arena,
organizations such as GlaxoSmithKline, General Electric,
Cisco Systems, The American Heart Institute, Wyeth and
Apple, among others, have adopted difficult-to-imitate
and firm-specific approaches to managing talent. According
to Terri Novak, COO (chief operating officer) at Kisco Senior
Living Communities, ‘‘We win with talent.’’
Cultivating a unique base of talent ultimately means
investing disproportionately in certain types of employees,
based on their strategic contributions and roles. This is
necessary for two reasons. First, senior level managers must
determine where talent can be translated into direct stra-
tegic impact. Impact occurs when the right talent at the right
time drives the execution of a firm’s strategy. John Ham-
mock, CEO of Viewcast, a manufacturer of video-ware pro-
ducts, says, ‘‘We need to identify our strategic positions first
and then address our talent issues.’’ Second, a strategy
focused on matching talent to key firm requirements provides
a clear and unambiguous alignment basis for the firm. That is,
once the organization understands what its capabilities are, a
sharper focus on developing management talent can thus
ensue. QuikTrip, Trader Joe’s, Costco, and Wegmans, among
others, have found ways to align their employees’ talents
with their business strategy. These companies focus on deli-
vering their products/services to customers at competitive
prices with minimal inconvenience. Their entire organization
is built around these capabilities.
W.F. Joyce, J.W. Slocum
QuikTrip is a convenience store chain with more than 540
stores and $8 billion in sales. This alignment results in a 13
percent turnover rate among employees, compared with a 59
percent industry average, and 66 percent higher sales per
hour than other convenience stores. CEO Chet Cadieux
believes that extroverted employees sell more, like each
other more and are more likely to engage customers in small
talk, which increases customer satisfaction. Selecting extro-
verted managers fits with QuikTrip’s organizational capabil-
ities. Once hired, all full-time employees receive 80 hours of
training, and part-timers receive 40 hours. During this train-
ing, QuikTrip’s management explains how employees contri-
bute to the firm’s exceptional focus on key tasks rooted in its
operation-driven discipline. For example, employees quickly
learn that they need to open up additional cash registers as
soon as a line builds at the checkout counter. Likewise,
employees are expected to clean the inside and outside of
the service station to exacting standards, ensuring that trash
does not fill up in disposal bins, automated gas dispensers
have paper to process credit-card transactions, and wind-
shield cleaning fluids remain filled for customers’ conveni-
ence. Inside the convenience store, employees also are
taught to monitor how long food is cooked and warmed to
ensure freshness and even preparation. This focus on running
a tight ship translates into executive execution at each
service station.
Other companies, such as Dell, Amazon, UPS, USAA, have
become industry leaders through their laser-like focus on
operational discipline. These firms seek ways to minimize
overheard costs, reduce waiting time or work-in-process,
eliminate intermediate production steps, reduce transaction
costs, and streamline business processes across functional
boundaries. In turn, these companies consistently deliver
their products/service to customers at extremely competi-
tive prices with minimal inconvenience. The entire organiza-
tion is built around these capabilities.
Consider the example of the near-obsession that UPS
devotes to refining and perfecting its operations-based dis-
cipline. UPS invests tens of million each year in state-of-the-
art information and order-fulfillment technologies that
enable employees, vendors, and customers to track the
status of their package shipments at any time. Recently
UPS has invested in three-dimensional bar-coding tracking
systems that can read packages from all six sides as they
move down a conveyor belt, after which they are sorted by
size, shape, and delivery destinations. UPS drivers are
trained in over a hundred exacting procedures, including
the need to avoid left turns where possible and to pre-place
packages in the truck in such a way that heavier packages
come out before lighter ones in order to save time.
At QuickTrip, Chet Cadieux, CEO, believes that in-store
logistical processes represent the strategic capabilities that
differentiate QuikTrip from its competitors. However, this
dedication to logistics becomes moot if employees are not
trained and retained to utilize these resources to the max-
imum extent. Employees are cross-functionally trained to
perform a variety of tasks — from checking customers out to
brewing coffee to doing janitorial work. Logistical processes,
including everything from merchandise ordering to moving
merchandise around in the store, are timed. Employees are
empowered to decide how many units of each SKU (stock-
keeping unit) to order. QuikTrip believes that empowering
Top management talent, strategic capabilities, and firm performance
employees in these ways make them responsive to local
needs and preferences, as well as increasing customer and
employee satisfaction. By standardizing processes, employ-
ees can move from store to store, since all stores have the
same design.
Ideally, strategic capabilities enable the firm to further
reinforce its distinctive competencies, which represent com-
petitive strengths when deployed against a rival’s weak-
nesses. For example, McDonald’s finely tuned supply chain
— which maximizes buying power for everything from pota-
toes to ground beef to beverages —enabled it to outflank and
successfully compete against rival Burger King for more than
20 years.
Talent development at such hypercompetitive firms as
Samsung, Toyota, Intel, and Whirlpool have vaulted each
of these companies into industry leadership positions. A
dominant theme that is shared among these firms is that
they take a long-term approach to developing talent in each
business unit and department to ensure employees support
their firm’s strategic mission. Nevertheless, firm capabilities
and talent pools vary considerably across firms, and they are
built and managed differently. Talent management must also
match the organization’s specific strategy and mission to
create and reinforce these capabilities. For example, while
speed, product innovation and manufacturing flexibility are
capabilities at Viewcast, these same capabilities are less
germane at more consumer-oriented retailing giants as
Costco, Jiffy Lube, YUM Brands, or Club Corporation. Talent
management practices and challenges would differ among
these firms based upon strategic trajectories and the varying
competitive market and financial performance challenges
they face.
OUR STUDY
The purpose of our study was to understand how the strategic
capabilities of firms align with the talent of senior managers
to affect the financial performance of their firm. We studied
200 firms drawn from 40 industries over a 10-year time
period. The firms varied in size, and represented firms that
were both domestic and global in scope. We made an effort to
be as exhaustive as possible in the identification of relevant
material pertaining to the performance of the firms studied.
We were careful to assess source credibility before including
data from any particular firm.
Each company in our study was assigned to an industry
subgroup such as retailing, consumer electronics, or energy
(40 in all). They were given a specific performance designa-
tion in that subgroup based on their performance relative to
peers. The specific performance measure utilized for this
purpose was total returns to shareholders (TRS). Companies
were identified by their performance as a Winner, Climber,
Tumbler or Loser over the 10-year time frame of the study, as
shown in Fig. 1. To do this, we examined a firm’s performance
over two five-year time frames.
To illustrate, some firms started out with strong TRS in the
first time period (first five years) and became even better in
the second time period (second five years) — these are our
Winner firms. Tumblers generated strong total returns to
shareholders in the first five years of the study and then
faltered. Climbers and Losers both began with weak TRS
185
Figure 1 Firm Performance Types.
relative to their competitors. However, Climbers were able
to overcome their problems and rise to a high level of
performance by the end of the 10-year time period. They
engaged in strong management/talent practices that sub-
stantially improved their competitive position within their
industry. Losers muddled along, never rising above mediocre
performance in TRS, but not failing.
Our designation of Winners, Losers, Climbers and Tumblers
therefore is based upon the financial metric of total returns
to shareholders. In order to test the robustness of this
classification, we used several alternative measures of finan-
cial performance for classifying the firms. These included
return on invested capital, growth in sales, growth in assets,
and earnings per share. All metrics produced similar results,
suggesting that a classification based upon TRS was a valid
measure of a firm’s performance.
This research design has a number of important charac-
teristics. First, it allows us to separate industry character-
istics from firm capabilities as causes of financial
performance. Specific industries may be more or less com-
petitive, concentrated, or regulated than others. By compar-
ing the capabilities of firms within, as opposed to across
industries, we eliminate broader macro-industry effects as a
potential cause of the performance differences among the
four firm types comprising the industry grouping (the
‘‘Quad’’). Industry effects are similar for all firms. It would
be misleading to compare Shell to Nordstrom, or Best Buy to
Sony. By comparing firms within industry groups, we separate
the effects of capabilities and industry membership on firm
performance.
The use of this design allows us to more clearly identify the
capabilities that correlate with firm performance. Previous
research has sometimes studied firms that are dominantly
drawn from one of the four types above (‘‘excellent’’ com-
panies, ‘‘great’’ firms, etc.). Despite the interesting results
of these studies, an important question remains: How do we
know that Winner firms do anything different from Losers, or
Climbers, or Tumblers? Common capabilities cannot be the
cause of different levels of performance, and so we must look
to the differences among the capabilities of Winners, Losers,
Tumblers, or Climbers for an explanation. Identifying these
differences is difficult or impossible without the inclusion of
multiple firm types, as in the research design employed here.
The primary sources of data for this study were Fact
Books, which are collections of publicly available information
containing information specific to each of the 200 firms
studied over the 10 year time period of this research. These
186
books contained a number of reports, articles and analyses
prepared by analysts, journalists, or researchers studying the
particular firm of interest. In general, the Fact Books are
voluminous and contained 20—30 papers focusing in each of
the two five-year time periods comprising the overall 10-year
study. Although some papers are short, most are between five
and 10 pages in length. Over 60,000 pages of data were
analyzed in our study.
All interviews and articles were initially reviewed for each
firm. Following this phase, specific sources were eliminated
from further analysis if they over-sampled particular time
frames (generally, selected studies were balanced across
both the years and periods of the study, adjusted slightly
for publication lag), or lacked source credibility (for exam-
ple, Fortune, Wall Street Journal, Business Week were pre-
ferred over obscure journals and publications).
What We Found
For each firm, issues bearing on that particular firm’s per-
formance were identified, categorized and then clustered
based on their content. This process yielded eight clusters or
types of firm capability that explained the differences in
performance across all of the firms in the study. Interestingly,
four of these clusters were essential for high performance.
That is, winner status could not be obtained without excel-
ling in all four of these capabilities. All winner firms scored
significantly higher than losers, climbers, and tumblers on
these dimensions. Winner status could not be obtained with-
out possessing all of these capabilities. These clusters were
comprised of issues representing Strategy, Structure, Cul-
ture, and Execution capabilities. They are termed ‘‘Founda-
tion Clusters.’’
Why these four foundation clusters? Our research indi-
cates that whatever a company’s strategy is, whether it is low
prices or innovative products, it will work if it is focused,
clearly communicated and well understood by all stake-
holders. The essence of strategy is to match strengths and
distinctive competencies in such a way that the firm enjoys a
competitive advantage over its rivals. Strategy should be
built around both the demand side (customer expectations)
and the unique choices that a firm makes about its value
chain (supply side). We believe that the real strength of a
company’s strategy is doing something better than its rivals,
because the company performs different activities in its
value chain or has chosen a different configuration of these.
Dollar General maintains a clear and intense focus on low-
income customers who live in small rural communities that are
too small for ‘‘big box’’ retailers, such as Target and Wal-Mart
Stores. It competes with Family Dollar and Dollar Tree, and
numerous independently owned stores. Dollar General doesn’t
accept major credit cards (saves rebate to credit card com-
panies), but accepts food stamps. While managers spend hours
agonizing over how to structure their organization, what really
counts is whether the structure reduces bureaucracy and
simplifies tasks. Structure should enable the firm’s strategy
to be implemented flawlessly. People in the organization must
be able to understand how their actions interrelate with the
actions of others to support and execute the firm’s strategy.
Corporate culture provides the glue that reflects the norms
and ideals of the firm and guides employees’ behaviors. It is the
W.F. Joyce, J.W. Slocum
corporation’s ‘‘personality.’’ Once shared values become part
of the rubric of the firm’s culture, they serve as psychological
rudders that guide employees’ behaviors. Finally, the firm
needs to execute its value proposition to its customer con-
sistently. To deliver on its promise to provide quality good at
low prices, Dollar General not only focuses on a select group of
customers, but also performs different activities in its value
chain. For example, it doesn’t advertise, but relies on word-of
-mouth. It doesn’t carry non-perishable items or soft goods. A
typical store carries 10—12,000 SKUs. Stores are 7,200 feet and
are located in stand-alone strip centers along state/county
highways used by truckers and working parents. It also uses
sophisticated logistic management techniques to cut its dis-
tribution costs. For example, Dollar General drops 150—200
slow moving items each year and replaces these with better
offerings. It has built nine regional distribution centers to
reduce the distance that trucks have to travel to its 9,800
stores. Drivers use 53-foot semi-tractor trailers to haul mer-
chandise to the store instead of 45 footers, saving time and
money to deliver goods to the stores.
However simply possessing all four foundation capabilities
was not enough to ensure Winner status. Becoming and
remaining a Winner required excelling at two additional cap-
abilities from among the remaining four capabilities. The
remaining four types of capabilities (from the initial eight
after naming the first four foundation capabilities) are Talent,
Leadership, Innovation, and Growth. When high levels of any
two of these were combined with high levels of the four
foundation capabilities, Winner status was obtained. Since
only two of these capabilities were required for high perfor-
mance, and because it could be any two of the four, we named
the remaining four clusters complementary, as opposed to
foundation capabilities. For the purpose of obtaining Winner
status, it does not matter whether these two complementary
capabilities are Talent and Leadership, Growth and Innovation,
or any other combination of the non-foundation capabilities.
These findings are very important because they make
clear how Talent contributes to firm performance. Talent,
by itself, cannot produce performance. Unless talent prac-
tices build and sustain the four foundation capabilities of
strategy, structure, culture and execution, they make little
difference to firm performance. The purpose of this paper is
therefore to illuminate how talent practices make such a
contribution. Understanding successful talent practices
means understanding their role in achieving these results
in the strategic context of each of our quad types, Winners,
Losers, Climbers, and Tumblers.
There are two assumptions in this analysis. First, CEOs of
losers and tumblers wish to improve their firm’s performance.
While this seems like an obvious assumption, experience
suggests that some businesses (perhaps most often family
owned) are content to generate mediocre results relative to
competitors, as long as they generate sufficient income and
survive. We contend the desire to achieve winner status is a
mandate. Our second assumption is that firms will undertake
different talent practices based upon their strategic type.
Losers will undertake different actions than Tumblers, and
Winners engage in different talent practices than Climbers.
The specific talent actions undertaken will depend on the
starting point for the climb from mediocrity to winner status.
In order to identify these critical Talent practices, it
was therefore necessary to understand the capabilities
Top management talent, strategic capabilities, and firm performance
Figure 2 Capability Space.
distinguishing Winners, Losers, Climbers, and Tumblers, as
well as the mechanisms through which Talent influences them.
This allowed us to assess the efficacy of various talent manage-
ment practices in achieving high levels of firm performance.
We compared the capabilities of each of the four firm
types (Winner, Loser, Climber, and Tumbler). Each type had a
unique profile of capabilities. Fig. 2 portrays the results of
these analyses for the Winner firms in the form of a ‘‘Cap-
ability Space’’ (CSP). Each dimension of the capability space
is based on one of the four Foundation clusters. The Strategy
and Execution capabilities are shown on the Y axis in Fig. 2,
with Culture and Structure on the X axis. Broadly, these
correspond to ‘‘Strategic’’ and ‘‘Organizational’’ dimensions
of the CSP. Strategic and Organizational dimensions focus on
longer (Strategy and Culture) and shorter (Execution and
Structure) term capabilities, as shown in Fig. 2.
The Foundation capability profiles of each of the remain-
ing three firm types (Losers, Tumblers, and Climbers) may
Figure 3
187
then be identified by computing the ratio of each of their four
capability scores to those of the Winner profile shown in Fig.
1. The resulting capability scores may be interpreted as the
percentage of the Winner profile scores achieved by each of
the remaining three firm types (Climber, Tumbler, and Loser)
on each of the four foundation capabilities. The Winner firm
occupies almost 100 percent of the CSP by definition. Each of
the remaining three quad types occupies only a portion of this
space.
Comparing the Capabilities of Winners, Losers,
Climbers, and Tumblers
The profiles of Winners, Losers, Tumblers, and Climbers are
compared in Fig. 3. The shaded area in these diagrams
represents positive actions (e.g., related acquisitions,
reduced bureaucracy, and the like) taken with respect to
each of the four foundation practices, and subsequently, for
each of the four quad types. The white area represents
negative actions (excess bureaucracy, failed diversification,
failing to maintain customer focus, etc.).
Losers, such as K-Mart, Zenith, and Pilgrim’s Pride, seem
to have very few strategic capabilities. They execute mod-
erately well, but only against other firms that have a com-
parably weak set of foundation capabilities. These
organizations are rife with bureaucracy, rules and regulations
and rely on hierarchy to control their employees. There are
few mechanisms for cross-functional coordination. They have
created a culture that is controlling, ambivalent and unin-
spiring. High performing managers have left these firms,
leaving Losers with few managers capable of executing their
organization’s foundational capabilities. As a result, these
firms consistently underachieve in relation to their perfor-
mance goals. Losers typically react to their environment and
are likely to remain excessively internally focused and
riveted to short-term performance gains, as opposed to
seeking new ways to redefine their business opportunities.
Capability Lessons
188
Tumblers, such as Alberto-Culver, Food Lion, and Circuit
City, possess a stronger, yet still troubling profile. First, we
notice that Tumblers (who were once Winners) have stopped
building the management capabilities that led to their suc-
cess. This is compounded by many errors — in fact, so many
that they virtually offset the positive actions attributed to
these firms. These errors likely stem from a growing mis-
alignment somewhere among the four dimensions over time.
As the misalignment exacerbates, the errors exert an even
greater deleterious impact on performance. Tumblers have
lost many of their winning strategic capabilities. They com-
pounded this with many errors in attempting to rebuild them
(e.g., untimely acquisitions that are unrelated to their core
competencies, downsizings, poor performance reward sys-
tems) — a dangerous posture indeed. Tumblers are likely to
have drifted into believing that their sources of competitive
advantage would never change, and thus become ossified and
vulnerable to new types of competitors.
Climbers, such as Nordstrom, Adobe, and Ryland Homes,
seem to have avoided making errors. Climbers are strong
executors. They build strong strategies on the basis of their
strategic capabilities and managerial talent. Winners excel
at all four capabilities. With strong strategy and execution,
Winners build on these strategic capabilities to strengthen
both structure and culture. They make few errors and enjoy
the luxury of continuously refining and improving already
excellent capabilities. They hire strong executives based on
their ability to executive their firms’ foundation capabilities
and follow carefully executive succession plans and
employee development programs. These improvements
likely generate their own momentum, as competitive success
reinforces those strengths.
Turning Points
Let’s take an in-depth look at the talent practices that are
associated with these four types of firms. To examine how
strategic capabilities and talent practices interact to deter-
mine performance, we will contrast the four firm types at
crucial ‘‘turning points’’ in their financial histories. Turning
points represent critical inflection points that initiate a
transition to higher or lower levels of financial perfor-
mance. All managers aspire to take their firms to the Winner
position, and generally take action to exit the Loser posi-
tion. Similarly, Winner firms seek to perpetuate their posi-
tion and avoid falling to lower levels of performance.
Climbers and Tumblers therefore represent transitional firm
types occurring at turning points in the performance of the
firm; in the first case, from a lower to a higher level of
performance, and, in the second, a fall to lower perfor-
mance relative to their competitors. In this sense, Winners
are paradoxically vulnerable to becoming Tumblers any
time that their talent practices become misaligned with
changes in their strategy.
In investigating the critical role of talent, we found it
useful to consider three types of actions taken by firms over
the 10-year time period of the study. We identified these
action types by ranking the various issues comprising each
capability for both time periods 1 and 2 of the study. The
action types for time period 1 can then be compared to those
for time period 2, for each firm. Some actions will appear in
only time period 1. Others will appear only in time period 2.
W.F. Joyce, J.W. Slocum
Some will be present in both time periods. These three types
of actions can be described as follows:
Type I — Early Moves These are issues that were men-
and Corrections: tioned predominantly in time period
1, but not time period 2. These char-
acterize actions that were taken in
the first period of the study, but were
discontinued in the second period.
Type II — Later Moves These are issues that are predomi-
and Positioning: nantly mentioned in time period 2,
but not time period 1. These are
actions characterizing the second
period of the study but not the first
period, or critical success factors
relevant at the later stages of
change.
Type III — Consistent These are issues that are present in
Moves and Themes: both time periods 1 and 2. They are
the ways that the organization has
remained the same over time, or has
maintained a consistent focus on
particular courses of action.
The overall size of the organizational change is larger the
greater the frequency of Type I and Type II issues. The
organizational causes for any performance change will be
found in the distinctions between these two types of issues.
Higher frequencies of Type III issues indicate that the firm
tended to follow a similar strategy and implementation
process over both of the two time periods of the study.
Four Profiles
Firm capabilities represent long-term investments in knowl-
edge, insights, and processes that translate the firm’s mission
and goals into actions. By their very nature, capabilities are a
function of each firm’s unique history, position within its
industry, prior investment decisions, and certainly the vision
of senior management Thus, attaining a tight-fitting match
between organizational capabilities and talent management
requires a deep understanding of the firm’s businesses, as
well as how the requisite set of talent is likely to evolve over
time. This reality presents a number of important questions
and challenges for senior management, as evidenced by the
turning points listed below.
Losers
Loser firms concentrated on the strategic capabilities and
neglected the organizational moves shown in Table 1. By
failing to achieve any real gains in strategy and execution,
they are never able to address the relevant issues of recruit-
ing talented managers and creating a high performing cul-
ture. Losers seem to have a superficial understanding of
strategy, since they believe that strategy formulation auto-
matically leads to tight execution. On the contrary, strategy
implementation is effective only to the extent that requisite
structure facilitates smooth resource allocation (including
people) and the culture rewards the kinds of behaviors
necessary to reinforce execution of a strategy. Following
an early emphasis on broad markets, Losers pursued a set
Top management talent, strategic capabilities, and firm performance 189

Table 1 Turning Point: Failing to Climb.

Early Moves Consistent Moves Late Moves

Loser Inactive, no focus Inactive, fail to build Become active, fail to align and invest
Strategy Emphasized broad markets/ Focused on niche markets Emphasized core business
acquisitions Emphasized growth
Execution Product diversification Tried to reduce costs Improved efficiency/decreased
Weak financials Management squeezes funding costs late
Market share plateaus +/or for new products to save cash Weak marketing
declines Poor distribution channels
Fast/flat Promotion from within fosters Failed to eliminate excessive Organizations remain slow and
structure group think bureaucracy sluggish despite change

Culture Few norms rewarding high Mechanistic systems foster Employees not enthusiastic about
performance; no feedback loss of commitment; not jobs; no praise for performance;
systems; easy going results oriented no job security

Talent Extensive management changes Management talent is uneven Hired Improved management team
Hired weak managers Key human capital leave

of moves that were inconsistent with implementing a sus-
tainable strategy. Oftentimes they find themselves ‘‘stuck-
in-the-middle,’’ neither able to achieve a razor focus to serve
niche markets, nor able to attain scale to serve broader,
larger markets. They increased their emphasis on niche
markets as they simultaneously sought broad market posi-
tions. Their structure is excessively bureaucratic and empha-
sized hierarchical decision-making, despite efforts to
improve it. Tall and brittle silos reduce lateral communica-
tion and impede attempts to speed product development and
connect with customers. Leaders reemphasize their core
business to improve their cost positions, but marketing and
organizational problems continue without resolution.
Consider the stages of talent management practices in the
context of these moves. Losers seem complacent and inac-
tive. In early stages they do make management changes, but
hire managers who lack the managerial acumen to grow the
firm. Their loser status inhibits the ability to provide execu-
tive compensation sufficient to attract high talent individuals
and the result is consistently uneven management quality.
This team can reasonably be seen as responsible for some of
the slight improvement in the Late Moves and Corrections
stage, but it is only an insufficient beginning. Unfortunately,
the lack of a clear strategic direction, compounded with the
inability to recruit bold new managerial talent, creates a
vicious downward spiral in which existing talent seeks to
leave and new talent is hesitant to join the firm.
Losers fail to align and invest in people. Senior managers
in the Loser category focus on internal exigencies and things
that demanded immediate attention. Managers have rigid
job descriptions that focus on solving tactical, as opposed to
strategic, issues. The urgent need to put out today’s fires
trumps important investments in the future. Little attention
is paid to strategic planning and focusing the firm on how it
can provide value added product/service features to current
and future customers. Once created, few positions are elimi-
nated, resulting in an even more complex and byzantine
organizational structure. The objective of selecting talent
is to fill positions, often based on political exigencies, instead
of seeking the best candidate. Performance expectations are
obtuse, and little performance feedback is provided. Like-
wise, performance metrics tend to be invariant for all
employees, irrespective of actual performance. Employee
development is driven more by convenience than by design.
These practices are negative mirror images of the practices
of winner firms like GE, MetLife, Dollar General, and Camp-
bell Soups.
Climbers
Climbers appear to begin where Losers end, and present a
strikingly different set of moves, as shown in Table 2. Climbers
are active with respect to all four foundation capabilities, as
they seek to increasingly build and leverage their strengths to
regain previously high levels of financial performance. They
stick to a focus on their core competencies. Successful struc-
tural changes to improve the speed of decision-making and
eliminate bureaucracy precede and lead to the institutiona-
lization of these changes in a productive and strong culture. In
their early move phase, climbers shed poor businesses and
broaden product lines to create a sustainable competitive
advantage in their industry. These structural moves free
resources for managers to pursue more promising opportu-
nities where they can build upon their unique sources of
competitive advantage. This pattern is consistent across the
entire 10-year time frame, with new, but consistent initiatives
at both the early and later stages of the time period. There is
an accompanying, intense and consistent emphasis on cost
take-out and efficiency at all stages. Operations and flawless
execution dominate these firms’ organizational DNA.
The development of talent practices also displays a similar
pattern of activity and consistency. In early stages, down-
sizing actions complement efforts at cost reduction to shar-
pen execution. Management is successfully restructured from
a hierarchy-driven to a decentralized management system,
as layers are systematically eliminated. This new structure
provides the leadership necessary for faster learning, unim-
peded communication flows and process improvement at
later stages of change. With new participative leadership
and a lean workforce, talent practices focus on empower-
ment, investment in high talent individuals, and further
190 W.F. Joyce, J.W. Slocum

Table 2 Turning Point: From Losing to Climbing. Climber Strategic Capabilities and Talent: Early, Consistent and Late Moves.

Early Moves Consistent Moves Late Moves

Climber capabilities Focused and reduced costs
Strategy Broadened product line
Divested poor businesses
Quick strategic corrections
Created new strategic focus
Execution Improved operations
Corrected poor product
development
Reduced high costs
Fast/flat structure Concentrated on speed in
decision making
Restructured to eliminate
bureaucracy
Culture Comfortable with conflict;
action-oriented
Talent Quickly downsized
Restructured management
Builds capabilities
Consistent focus on broad
markets
Diversified products
Improved customer service
Continued cost take-out
Built strengths marketing/ops
Built quick and responsive
structure
A clear guiding philosophy that
rewards performance,
cross-functional team
building risk-taking and
being aggressive
Changed key managers
Empowered managers
Consolidate, align, invest
Emphasized growth. broad markets,
core business
Focused on key stakeholders
Globalized business/markets
Improved customer service
Better cost controls
Developed new stronger products
Focus on both customer intimacy
and operational effectiveness
Built a productive, strong culture;
employees share information
Strong CEO focused on results
Invested in people and change
Improved empowered managers

successful workforce change. Climbers can be characterized
as active and consistent in aligning, consolidating and invest-
ing in capabilities.
Work in these organizations is constantly revised to find
ways to add more strategic value for customers and eliminate
work that no longer adds value. Organizational discipline
focuses on attaining ever-higher levels of performance, most
likely through stretch goals that are unyielding in employee
expectations. Leaders identify roles that add strategic value
and demand that they be filled by the best talent available.
They do not settle for second best. Performance expectations
are clear and consistently raised. Specific performance feed-
back is provided on an informal and formal basis. Rewards are
disproportionate, reflecting the strategic contribution/per-
formance of the person to the firm. Considerable time is
dedicated to developing talented managers through the use
of mentoring programs, rotational assignments, and external
training programs.
Winners
Winners seem to begin where the Climbers end. Winners build
on their previous success as Climbers to leverage winning
capabilities as illustrated in Table 3. Strong cost and market
positions allow managers to pursue previously inaccessible
international and niche positions, in addition to a broad
product focus. Defining unique value propositions that allow
their firm to focus on profit is the focus of all managers. Their
organizational structure allows for fast communication and
knowledge sharing. Winners institutionalize their success by
developing innovative procedures for strategic market selec-
tion, and operationally, through continuous improvement
efforts. They maintain a focus on structure at both early
and late stages, achieving a dual focus on speed and market
needs. The culture empowers employees to make decisions
and does not punish them for mistakes. It is aligned with
structure and the other remaining capabilities, emphasizing
market needs, motivation, empowerment, and trust — the
necessary ingredients for speed and execution.
This pattern repeats itself for the talent practices. Win-
ners invest resources to develop strong human resource
practices across the 10-year time period and increase these
efforts even further in the late stages of the period. Notably,
Winners engaged in incentive compensation practices to a
significant degree over the entire 10-year time period. Win-
ners leverage and institutionalize their highly successful
capabilities (such as celebrating small wins, having direct
reports strategically assess their boss, cross-functional men-
toring) consolidated their gains at higher levels of perfor-
mance and invested for the future. Many of the winner firm
human resource practices become best practices and set new
benchmarks for talent management in their industry. GE’s
Work-Out! Process became a new standard for large-scale
cultural change. Its Change Acceleration process was mod-
ified by GM and subsequently used to produce over $1 billion
in cost savings — an amount critical to GM’s turnaround.
The risk for winners is that they become blinded to the
need for new types of talent as their businesses evolve,
particularly if the underlying structure of the industry begins
to change or major competition emerges from unanticipated
rivals (such as foreign competition). Talent that is continually
rewarded for pursuing excellence today may shortchange the
ongoing learning needed to better prepare for tomorrow’s
uncertain exigencies.
Tumbler
The Tumbler, having obtained winner status, fails to sustain
it. Just like the fabled Icarus from Greek mythology, whose
wings of wax and feathers enabled him to fly so high and
so close to the sun that his wings melted and he fell into
the Aegean Sea, Tumblers fall ungracefully. Just as Icarus’
Top management talent, strategic capabilities, and firm performance 191

Table 3 Turning Point: Remaining a Winner. Winner Strategic Capabilities and Talent: Early, Consistent and Late Moves.

Early Moves Consistent Moves Late Moves

Winner capabilities Leverage winning practices
Strategy Emphasized international and
niche markets
Acquired strategically-grown,
obtain synergies and competencies
Execution Focused on effective marketing
Maintained strong product position
Used cost reduction to improve
profitability
Fast/flat structure Fast communication and
knowledge sharing
Culture Emphasis on teams, fairness,
tolerance, informality, people
empowered to take initiative
Talent Downsized effectively
Experienced, empowered,
and hands-on management team
Institutionalize winning
Strategic market selection
Diversified and increased
market share
Provided good customer
service, quality
Continuous improvement
efforts
Established good operating
controls, good efficiency
Strong team-based culture
focused on market needs
Leverage incentive compensation
Strong HR practices produce
and retain strong CEO, workforce
Consolidate gains/invest
Strategic acquisition
International and geographic
growth
Grow market share
Continue to improve marketing
Continuous improvement
efforts across functions
Product diversification
Restructure to focus on market
Organization reacts quickly
to market
More efficient structure
Strong shared culture of
empowerment, trust and
motivation
Continue to Invest in
Winning HR practices

impetuous nature proved self-destructive, Tumblers follow
their success with mistakes (e.g., mergers, acquisitions,
product expansions) that take them away from their
strengths, as shown in Table 4. Their broad product position
is compromised by decisions to narrow the product line.
Performance falters, and they lose key strengths in market-
ing, sales, and customer service. Some strategic strength
remains, and they are able to grow some existing businesses,
in spite of having made serious mistakes (e.g., untimely
acquisitions, poorly integrated mergers). Tumblers do not
spend much time on the organizational capabilities that were
so important to them in the past. Once strong entrepreneur-
ial and team based cultures disappear, replaced perhaps out
of frustration by an unnecessarily dysfunctional culture that
harmed critical strategic relationships with partners. Tum-
blers lose critical capabilities, replacing them with unsuc-
cessful ones. They begin to make mistakes, while forgetting
their greatness.
Some of the reasons for these failures may be seen in their
talent practices. Early talent moves include the abandon-
ment of incentive compensation practices. Performance
metrics and reward systems become static and tend to

Table 4 Turning Point: From Winning to Losing.

Early Moves Consistent Moves Late Moves

Tumbler capabilities Forgotten greatness
Strategy Narrowing product line erodes
competitive advantage
Broad product position compromised
Execution Key strengths in marketing, sales,
and customer service erode
Financial performance falters
Lose focus on profits
Some strengths remain
Grew international business
Grew existing businesses
Improved broadened
products
Improved customer
service/ops
Continued cost take-out
Continued mistakes
Inconsistent strategic emphases
New focus on niche markets
Some remaining strengths
Attempt improvement in
product, mark, growth but falter
Product line managed poorly

Fast/flat structure Restructured late with mixed

results
Culture Lost strong, entrepreneurial, Relative freedom from Not demanding or achievement
team based culture rules; flexible oriented; little focus on quality

Talent Reduced use of incentive comp Management remains Poor CEO

Ceased effective HR practices uneven in quality Weak and downsized management
Lost CEO/management strength Weak employees
192
discourage stretch goals and personal excellence. Perhaps as
a consequence, there is an exodus of top management talent,
including the CEO. Without supportive leadership, other
effective human resource practices in selection, training,
development and staffing are discontinued. With this pre-
cipitating series of events, Tumblers are unable to rebuild
their management quality. The final result is poor senior
leadership and an unengaged and uncommitted workforce.
Tumblers abandon their winning capabilities, fail to rebuild
on strengths, and perpetuate their mistakes. There is no
more brilliant example of this death-spiral than the once
greatly admired Kodak and Polaroid corporations. Now lost to
bankruptcy, their once exemplar human resource best prac-
tices were destroyed by abandoning the talent practices that
had made them great and by their CEOs’ hubris.
CONCLUSIONS
Managers should place emphasis is on avoiding paths that fail
or stumble, and on creating/sustaining those that lead to
and/or sustain high level performance. The continuing devel-
opment of talent practices seems to have a clear role in these
processes in at least three ways. First, talent practices must
have a strategic focus and support the foundation capabilities
of the firm. Winners and Climbers achieve this, whereas
Losers and Tumblers do not. When Climbers have gained
Winner status, a second role for talent becomes important.
The talent practices of Winners continue to support and
consolidate earlier successes. Winners institutionalize their
strategic capabilities through talent practices that continue
to ensure they have the executive leadership to create the
structures and cultures to support strategy and execution. All
of our winner firms, Williams-Sonoma, Kohl’s, Dollar General,
W.F. Joyce, J.W. Slocum
GE and Gillette, took this critical step. Finally talent prac-
tices need to model the desired changes in organizational
capabilities. If team-based cultures are essential, human
resources practices must develop team competencies and
systems for managing them. If downsizing is necessary,
human resource practices must emphasize and develop trust
and empowerment to enable control without direct super-
visory oversight. Talent practices must not only build the new
capabilities that are required, but do so in ways that con-
tinues to support and consolidate earlier gains. This finding is
quite different from simply making changes in the manage-
ment hierarchy. Without consciously managing consistency,
change can become a disconnected set of well-intentioned
activities, often at cross-purposes with one another, out of
synch and non-cumulative. In 210 B.C. Petronius stated, ‘‘We
trained hard, but it seemed that every time we were begin-
ning to make progress, we would be reorganized. We tend to
meet any new situation by reorganizing, and what a wonder-
ful method it can be for creating the illusion of progress while
producing confusion, inefficiency, and demoralization.’’
Managers in Loser companies live by these words. As a result,
talented managers leave the firm and those that remain are
disengaged. It is also possible to rely too exclusively on the
old top-down strategy-structure-control model that empha-
sizes only strategic consistency. Successfully building firm
capabilities requires a more complex concept of consistency.
Talent practices must support strategy, model the desired
end state, and enable earlier steps in building the capabil-
ities critical to their success.
Top management talent, strategic capabilities, and firm performance 193

SELECTED BIBLIOGRAPHY
Some of these ideas have been presented in earlier works by
Wm. Joyce, N. Nohria and B. Roberson, What Really Works:
The 4+2 Formula for Sustained Business Performance (New
York: Harper Business, 2003) and Wm. Joyce, ‘‘What Really
Works: Building the 4+2 Organization,’’ Organizational
Dynamics, 2005 (spring), 118—129; Joyce, ‘‘What Really
Works: HR’s Role in Building the 4+2 Organization,’’ Human
Resource Management Journal, 2005, 44 (1), 67—72; D. Lei
and J.W. Slocum, ‘‘The Tipping Point of Business Strategy:
The Rise and Decline of Competitiveness,’’ Organizational
Dynamics, 2009, 38, 131—147.
For work on culture and organizational performance, see J.
Kerr and J. Slocum, ‘‘Managing Corporate Cultures Through
Reward Systems,’’ Academy of Management Executive, 1987, 1
(2), 99—108; H. Trice and J. Beyer, The Cultures of Work
Organizations (Prentice-Hall, 1993); and C. Jarnagin and J.
Slocum, ‘‘Creating Corporate Cultures Through Mythopoetic
Leadership,’’ Organizational Dynamics, 2007, 36 (3), 288—302.
For work on strategy and talent management, see K. Ryan,
‘‘Gilt Groupe’s CEO on Building a Team of A Players,’’ Harvard
Business Review, 2012 (January—February), 43—46; I. Tarique
and R. Schuler, ‘‘Global Talent Management: Literature
Reviews, Integrative Framework, and Suggestions for Further
Research,’’ Journal of World Business, 2010, 45, 122—133; E.
Farndale, H. Scullion and P. Sparrow, ‘‘The Role of Corporate
HR Function in Global Talent Management, Journal of World
Business, 2010, 45, 161—168; B. Becker, M. Huselid and R.
Beatty, The Differentiated Workforce: Transforming Talent
into Strategic Intent (Harvard Business Press, 2009); and Wm.
Joyce and L. Hrebiniak, Implementing Strategy (New York:
Macmillan, 1984).
For the book Moneyball, see M. Lewis, Moneyball: The Art
of Winning an Unfair Game (New York: W.W. Norton &
Company, 2003).
For more information on QuikTrip, see Y. Ton, ‘‘Some
Companies Are Investing in Their Workers and Reaping
Healthy Profits,’’ Harvard Business Review, 2012 (January—
February), 125—131; and D. Hellriegel, and J. Slocum, Orga-
nizational Behavior, 13th ed. (Masson, OH: Cengage Publish-
ing, 2011), 77.

William F. Joyce is a professor of strategy and organization science at the Amos Tuck School of Business at
Dartmouth College. He has consulted extensively with organizations in the United States, Europe, and the Far East,
specializing in strategy formulation and implementation, organization design and cultural change. He has served
as a principal consultant in strategy implementation and organizational design projects for AT&T, General Electric,
Lockheed-Martin, Allied-Signal, Ciba-Geigy Pharmaceutical, 3M, Aetna, MetLife and various government agencies,
including the EPA. His newest book, What Really Works: The 4+2 Formula for Business Success, was published by
Harper Business. (Tel.: +1 603 646 2802; email: William.f.joyce@tuck.dartmouth.edu).

John W. Slocum is Professor Emeritus at the Edwin L. Cox School of Business, Southern Methodist University. He has
consulted for organizations such as Lockheed-Martin, Aramark, Allstate Insurance Company, Kimberly Clark, AAA,
Celanese, Key Span Energy and University of North Texas Health Science Center, in the areas of cultural change,
organization design, and managing teams. He is past president of the 19,000 member Academy of Management and
co-author of 28 management books and more than 130 journal articles. He is associate editor of Organizational
Dynamics and co-Editor of the Journal of World Business and Journal of Leadership and Organizational Studies. He
serves on the board of directors of ViewCast Corporation and Kisco Senior Retirement Communities (Tel.: +1 214
768 3157; e-mail: jslocum@cox.smu.edu).