THE BLOG
10/22/2013 03:13 am ET | Updated Dec 21, 2013

WHY THE 'A' TEAM IS SO RARE

What would you think if there was a strategy that worked brilliantly 100% of the time, but was almost never used? What if the strategy had no side-effects, worked to everyone's satisfaction, and produced stunning results? You'd think people were crazy not to deploy the strategy - or else you wouldn't believe me. But honestly, there is such a strategy.

It's the 'A' team approach. The idea is desperately simple. Only hire the very best people in your field. If you make a hiring mistake, correct it quickly. When you hire someone new, recruit to improve the (extremely high) average - only hire someone who will be in the top twenty percent of the firm. Do whatever is necessary to hire 'A' players and to keep them.

The strategy is used in a very few firms. I worked in one of these, the Boston Consulting Group (BCG), when I was in my twenties. It was an amazing experience. The combination of talent and intellect made work a joy. Every day you learnt something new. And you realized that you were in a firm which would do great things, no matter how small and inauspicious the beginnings. With the 'A' team around you, you cannot fail. You experiment, you devise all kinds of way to deploy your skills, you find what sells and what doesn't, and you sell more and more, at higher and higher margins.

There was only one downside for me at BCG, which is that by their definition of excellence - extraordinary analytical prowess - I fell well short. In effect they fired me, though they did it very nicely. I wasn't pleased at the time, but it was the best thing that ever happened to me. Within months I had found my place in a firm to which I was much better suited.

When I was one of the three founders of LEK Consulting - then called The LEK Partnership - I made it my business to hire the very best people from Oxford and Cambridge Universities that I could. And I did. Those people have nearly all gone on the great careers. Despite working incredibly - and stupidly - long hours, to work with such people was fantastic. We drew confidence from each other, and it was the time of my life. To see those people develop and eventually leave me behind in many areas was almost unalloyed pleasure.

The strategy has been used in other consulting firms, using other definitions of excellence - in McKinsey, in Bain & Company, in OC&C Strategy Consultants, and a few other firms. Those firms have grown and grown, and they are all very profitable.

The strategy has been used in investment banking, notably by Goldman Sachs and Rothschild, but also by other mainline and niche firms.

The strategy has also been followed by several other professional service firms - send me your experiences and examples please.
The strategy can also be implemented in firms that are dependent on intellectual capital and expertise, but which are outside professional services. Apple is an excellent example. When Steve Jobs was in charge, nobody at a senior level would survive unless they were smart as a whip. Microsoft was like that in the early days too.

But you run into questions of definition. In some firms the top echelon is exclusively 'A' people, but 'B' and 'C' people survive lower down. This gets messy and can dilute the whole idea. Here is Koch's law of 'A' people:

'B' and 'C' people drive out 'A' people

Imagine that you are a raw, young person interviewing at two firms for a job. One firm is prestigious but the person who first interviews you is a 'B' person. The other firm is almost unknown but you see a slew of really smart people, all 'A' people, at every level in the firm.

What happens? Well, firstly, the 'B' person may not hire you, instinctively fearing that you may be smarter than her. And even if they make you an offer, wouldn't you join the second firm? You would if you are as smart as you think you are.

And this is where the whole strategy falls apart. If you tolerate just one 'B' or 'C' person in the whole firm, then the 'A' strategy fails. And it quickly becomes a downward spiral.

So the firms with successful 'A' people strategies devote a lot of energy to de-hiring people who are not 'A'. McKinsey does this best, with its explicit 'up or out' policy, which is explained in the very first interview. If you are not a manager within three years, you are out. Funnily enough, McKinsey does this so well that the staff it rejects become CEOs and then hire McKinsey. Figure that out. I
call it the 'McKinsey Syndrome' - it's like the Stockholm Syndrome for people that are kidnapped.

But 99.9% of firms are not ruthless enough.

So they fail to start the 'A' people strategy, or fail to keep it up.

People think that capitalism is ruthless. Well, the market mechanism is quite dispassionate. But firms are composed of managers, who are not ruthless. Especially if they think, 'there but for the grace of God ...'

So an 'A' person strategy can only work with a really committed CEO. And, contrary to conventional wisdom, truly ruthless CEOs are as rare as sensible Republicans today.

So the 'A' people firms make hay, and the rest rise and fall with the market.

If you are an entrepreneur, and you don't have an 'A' person strategy, you are nuts.

You can't afford it?

You can't afford not to. Not if you really want to change the world.