• When interviewed by the Smithsonian Institution in 1993 about the early days of his company, Microsoft co-founder Bill Gates didn’t stress the role of software engineering in the company’s growth.
  • Instead, he talked about the decisive impact of a key HR decision: hiring one of his old school friends — a shy fellow called Steve Ballmer.
  • “When Steve came in, I spent a lot of time with him because the business side was important,” he said – “I got a lot of benefit out of Steve going around and knowing what people were thinking about.”
  • Bringing in Ballmer changed Microsoft overnight.
  • Why?
  • He introduced a wealth of new business ideas and skills at a strong, though somewhat geeky, engineering-focused company.
  • Ballmer wasn’t just an additive hire that raised the level of internal Microsoft competence — he was a multiplicative one, galvanising the company’s overall energy to a level of explosive growth, like a nuclear reactor reaching critical mass.
  • A way to think about what happened at Microsoft is that Ballmer increased the talent density of the organisation. His new set of skills and energy made everyone else more productive.
  • Talent density challenges the traditional bell curve concept, which has dominated company hiring and compensation thinking for decades but which can promote acceptance of some built-in mediocrity.
  • The talent density approach emphasises ensuring that every hire or promotion decision is a force multiplier that boosts the team’s overall capability.
  • It’s based on two key principles:
    • With the right support and training, every individual can achieve more.
    • Certain individuals are “hyper-performers,” who should be incentivised and rewarded accordingly.
  • In a perfect world, you’d always hire 10x performers for your company – but in fact, HR processes often prevent this from happening:
    • First, grading on a bell curve can discourage hyper-performers from joining, as it restricts the proportion of employees rated as top performers, no matter how well individuals perform. Why push hard if there’s no real chance to stand out?
    • Second, managers may feel intimidated by these high achievers, leading them to overlook or bypass such talent.
  • It’s well known in HR that five-star managers hire five-star people, while four-star managers hire three-star people – in other words, bringing in a 10x performer can be a no-no for a manager who is insecure about their own position.
  • As a result, our performance systems often work against talent density.
  • But in a world of talent scarcity and relentless pressure to maintain market leadership, we need to push back against this psychology and find more scientific ways of growing our bench.

Breaking the “Let’s Grow by Hiring” Impulse

  • Traditionally, many companies have adapted a “hire to grow” mentality, or a belief that increasing headcount directly leads to growth.
  • In the race for first-mover advantage, the mantra “get big fast” drives companies to hire rapidly, assuming that sheer size will secure success.
  • This approach is based on a flawed assumption: that there’s a linear relationship between the number of employees and the results they produce – we think more salespeople will drive more sales, more engineers will create more products, more marketers will generate more leads, and more service staff will cater to more customers.
  • However, this assumption does not hold true, as talent drives success more than sheer numbers.
  • The rush to grow by hiring puts pressure on managers and recruiters to fill positions hastily, often overlooking chances to enhance team operations, promote internal candidates, or automate processes to support growth.
  • Worst of all, over-hiring can diminish talent density by slowing down existing teams as they onboard new staff.
  • During periods of rapid growth, the responsibility for hiring gets delegated to lower-level managers, further diluting the focus on maintaining high talent standards.
  • Eventually, an organisation may find that despite hiring many employees, productivity continues to decline.
  • At this point, the CEO will be asking, “Why do we have so many people?”
  • Enlightened leaders are beginning to understand that the size of the team is less important than the quality of its members’ skills, capabilities, and teamwork.
  • In fact, in many companies, a few people generate the most value, with a long tail of people who perform at lower levels.
  • For example, a study conducted on 198 teams with more than 600,000 employees revealed that a small number of individuals consistently outperform their peers, often delivering results that may be as high as 10 times greater than the average of the cohort.

Building a Talent-Dense Organisation

  • The goal of talent density is to help and encourage every individual to move to the high part of the bell curve.
  • How can organisations achieve this?
  • By building a strategy focused on making overall organisational capability stronger.
  • Netflix has literally written the manual and set the standard for adopting talent density measures:
  • Compare this to companies like Meta or Intel:
    • When Meta initiated its “year of efficiency” and laid off 22% of its workforce, the stock started to soar.
    • Intel is undergoing a similar process.
    • Both companies had over-hired, which reduced their talent density and so they later had to correct course to regain productivity and efficiency.
  • Think of talent density as a way to increase productivity with a structured HR process.
  • If you want to improve productivity, each employee must continuously evolve in their role, adding more value each year instead of merely maintaining their current performance.
  • To achieve talent density, companies must adopt three strategies:
    1. Rethink the recruiting function:
      • Recruitment teams need to move away from the mindset of being the Amazon fulfillment center for people.
      • Instead, recruiters should challenge every hiring decision, urging managers to consider talent density and how each new hire will enhance overall team productivity.
      • This could mean prioritising internal candidates who “fit” with and are committed to the culture – they are often more productive and stay with the company longer.
    2. Move people into jobs that leverage their strengths:
      • This approach doesn’t just apply to new hires.
      • Every team member should significantly contribute to and enhance overall productivity.
      • This means you’ll need to support and encourage all employees to consistently improve their individual “talent density.”
      • If employees aren’t actively developing their skills, they may inadvertently reduce the overall talent density of the organisation, regardless of their tenure.
    3. Pay people at market rates or above:
      • Finally, you have to consider pay.
      • You can’t achieve excellence by paying average salaries.
      • You may have to be willing to pay above market rate for the superstars who drive performance.

Talent Density is an Advantage in the AI era

  • One final reason to focus on increasing talent density rather than expanding headcount is the radical transformation of business being driven by AI.
  • While AI will change every company, your goal should be to leverage AI swiftly to create a significant competitive advantage.
  • Nonetheless, coping with that change will demand ever more flexibility and learning agility within your company.
  • As a result, you need a highly focused, well-aligned, and talent-dense team to drive this transformation.
  • The head of HR at OpenAI has told me a select few individuals are seen as central to the company’s success, and that her role is to reward, motivate, and cultivate more talent like them.
  • In my experience, companies that push for continual high performance are energising places to work that consistently deliver outstanding products and services and are good long-term investment vehicles for stakeholders.
  • So, take a lesson from the best and emulate these successful companies by committing to a policy where no one receives a lanyard unless they contribute to your overall talent density, rather than just adding to the headcount.