Remember Shockley Semiconductor Laboratory?

If you don’t, you’re not alone. Truth be told, the lab is much more famous for what it could have been than for what it was. That’s because, back in the mid-1950s, Mountain View, California–based SSL could boast some of the best minds in the electronics industry. The lab was hardly the ideal workplace, however, and in 1957, a group of SSL’s top scientists (later dubbed the “Traitorous Eight”) would leave to form Fairchild Semiconductor.

But Fairchild itself would suffer its own share of defections, losing supremely talented individuals whose names read like a Silicon Valley hall of fame roster: Bob Noyce and Gordon Moore, cofounders of Intel; Jerry Sanders, cofounder and former CEO of Advanced Micro Devices; Charlie Sporck, former head of National Semiconductor Corp.; and Eugene Kleiner, cofounder of the venture capital firm that would later become Kleiner Perkins Caufield & Byers.

What happened to SSL and Fairchild? Why do some companies lose world-class talent? And perhaps more important, why are high-performance businesses able to retain such individuals?

Through seven years of ongoing research into what separates high-performance businesses from the rest, we have come to understand that the most successful companies surpass competitors in part by developing a superior culture of talent. They attract what we call serious talent—and then keep top performers on board by making it clear that they are part of a serious enterprise, one that is stocked with committed, talented individuals all striving toward the same ambitious goals. In other words, high-performance businesses make themselves worthy of such serious talent.

By serious, we are not talking about stars with big egos. We are talking about people who are at the top of their professions (the best researchers in the pharmaceuticals industry, for example) as well as those who are very good at what they do (such as salespeople who consistently land big new accounts). We are also referring to the individuals for whom work is not just a job but rather a source of personal pride.

Put another way, employees who are considered serious talent have both superior capability and the right attitude.

We have found that if organizations are to turn themselves into magnets for serious talent, they must establish a kind of perpetual chain reaction in which top-notch workers attract other highly capable people. Those workers must place expectations of merit on themselves that are every bit as high as those they place on recruits. This turns the focus of the “war for talent” on its head; it shifts the emphasis from enticing “star” performers to creating a company any employee serious about his or her work would want to be a part of.

High performers establish an environment in which three fundamental and equally important qualities desired by serious talent flourish. The first is capability. Serious talent want to know that the team they join has what it takes to succeed in difficult situations. Employees observe this through the pervasive competence of those around them. The second quality is predictability. To measure its own likelihood of success, serious talent demand to know what they can expect from others. High performers generate this through a widespread commitment to mutual accountability.

The third is reliability. Serious talent believe they must be able to count on their colleagues to do the right thing. This trust arises in high performers when an implicit culture of honor is present. In addition, serious talent need to be working with others who share a mindset that won’t settle for harmful compromises and who strive for continual improvement.

Capability through pervasive competence
Incompetence corrodes an organization’s ability to be worthy of serious talent. Ineffectual employees who are allowed to keep their jobs are like broken windows in rundown urban neighborhoods, which, according to theory, signal an absence of concern and control that encourages further decline. The presence of inept employees sends a signal to coworkers, customers, partners and others that no one cares how they perform and that, in any event, no one has the power to change things. High performers know that tolerating work that doesn’t meet high standards destroys the trust and confidence of the best employees.

That’s one reason companies need pervasive competence—employees with the right knowledge, skills, abilities and other characteristics at every level. Another reason: When an organization is pushing itself to the limit of what can be done, seemingly minor lapses can have large repercussions. That is, in top-performing businesses, the fault tolerance before failure occurs is usually much smaller. To achieve pervasive competence, companies need to know what kinds of skills and capabilities are required at each level of the organization, and they need to enforce those standards across the board.

Defining competence
High-performance businesses have their own definition of what competence is and rigorously adhere to that standard. They define not only what constitutes general competence but also the specific elements that are known to drive business success. Requirements for roles are clear and consistent, and people throughout the organization are aware of what they need to do to perform their jobs well. At UPS, for example, truck drivers need to know the “340 methods,” which set out everything from the most efficient way to carry keys (to avoid fumbling for them) to the number of steps per second that would be considered walking at a “brisk pace.”

When corporate goals change, definitions of competence must change too. In the early 2000s, Procter & Gamble set out to encourage more innovation. It began by conducting a survey of 2,000 former and current employees to identify the leadership behaviors that would best foster innovation. Using the results, it implemented a new performance evaluation system that emphasized key attributes, including the ability to generate innovations by building collaborative relationships. Those criteria were then used to assess managers regularly, and those who failed to show a consistent record of business-building innovation weren’t allowed to become line-group presidents, even if they had demonstrated outstanding qualities in other areas.

Enforcing standards
At low- and average-performing companies, the so-called Peter Principle—in which employees are promoted to their level of incompetence—often seems to be in effect. Not so at high-performance businesses, which don’t fall into the trap of trying to keep people happy with inflated titles when the company can’t up their pay. With that approach, too many vice presidents and associate directors fill small niches, and many of those promoted are in over their heads.

High performers actually prefer to go in the other direction, paying an employee well into the next title range as the person develops but holding back on the promotion itself until there’s no question that the role requirements have been fully met. Within a role, stretch projects are assigned to build and assess competence for future roles; they are not assigned as an early test for a newly promoted employee. If anything, employees at high-performance companies are typically overqualified for their positions by industry standards.

What do minimum high standards look like at a high performer? Consider the approach Best Buy took with its salespeople when it launched an initiative to shift from a product-centered strategy to a customer-centric one.

All new hires, after an initial four-hour classroom session, had to undergo online training and then take an exam after each course segment. After that initiation, they shadowed a more experienced salesperson until they were ready to fly solo. Even then, they continued to receive monthly training to stay abreast of new technologies, and they were responsible for learning about products outside their department so that they would be better able to cross-sell them to customers.

The salespeople who showed leadership promise weren’t then promoted automatically into managerial roles. Instead, they had to take a four-week training program with a coach, undergo more job shadowing, and work on small teams to solve real business problems. That type of employee development doesn’t come cheap—Best Buy was spending the equivalent of about 5 percent of its payroll on training at the time, reportedly more than any other retailer.

Predictability through mutual accountability
High performers are known to operate like well-oiled machines, and doing so requires more than rules, regulations and standards. It requires employees who deliver on their promises, on time, day in and day out.

What high performers’ employees share is a sense of mutual accountability. The purpose is less about holding employees’ feet to the fire than it is about getting to a place where employees know that a coworker’s word is his or her bond, making future actions and results highly predictable. This increased ability to count on coworkers to deliver gives employees and teams the confidence they need to take on the more challenging tasks high performers tend to engage in.

Two principles are critical to making this work. The company must constantly measure its progress against its own stated goals, as well as those of individuals. And accountability must be a two-way street, working not just from employee to supervisor but in the other direction as well.

A system of mutual accountability is only as good as its weakest link. No employee can be exempt from this obligation, and nobody—not even a top executive with numerous past successes to his or her credit—should be allowed to “retire in place.” Accountability means making good on promises, or paying a price.

That kind of philosophy is a hallmark of high performers like UPS, a company committed to measuring everything to ensure that management and employees remain accountable to each other as well as to customers. UPS relies on a variety of metrics, such as a customer satisfaction index that takes into account how the company is doing with respect to package handling, claims processing, billing and pricing. And customers are just one of four major areas of emphasis; the other three are financial, people and internal processes.

At high performers, mutual accountability is both lateral (between coworkers) and vertical (between supervisor and employee). As a result, these organizations make the development of people an obligation of company leaders—and they measure these leaders on their skill at this task. In contrast, many low- and average-performance businesses make the mistake of focusing only on upward obligations—what employees must do for their bosses. At top performers, mentoring, counseling and leadership development programs are not just paid lip service; they are taken seriously. Novo Nordisk, for example, assesses its managers partly by how well they develop and retain talented employees. Thanks to that approach, the company boasts, it loses no more than 4 percent of its top talent every year.

At UPS, hiring outsiders for anything other than entry-level positions is generally frowned upon. Specifically, it raises questions about the managers involved—why couldn’t they develop someone internally for that position? UPS expects its managers at the district, regional and senior levels to have in place succession plans that they must keep updated so that the company always has an accurate view of its leadership pipeline.

Reliability through a culture of honor
To maintain order and punish misconduct, societies typically rely on a culture of law, in which the group enacts and enforces a body of rules and regulations. But a culture of law by itself is not sufficient in society or in business. The primary reason is that not even myriad rules can cover every conceivable infraction, and enforcement can be costly and impractical.

For companies in particular, a second reason is that serious talent want to know that their colleagues’ actions are not governed by rules alone, so when an urgent situation arises, those colleagues will act out of duty, conviction and courage, not mere compliance. In that sense, serious talent look for companies that are not only reliable followers of the rules but also reliable in a crisis. And that’s why high-performance businesses also tend to rely on another system—a culture of honor.

In a culture of honor, when a person violates some generally accepted norm, others in the group ostracize or otherwise punish that individual swiftly to set an example. Because people are concerned with maintaining their reputations (and, ultimately, their honor) within the culture, they are less prone to become transgressors and more likely to punish those who transgress.

People can find loopholes in laws or otherwise discover ways to sidestep a rule or regulation, but they can never truly outsmart a code of honor, because it’s self-policing. That’s why cultures of honor can be particularly effective for maintaining order in an organization stocked with serious talent, because those types of individuals tend to be especially concerned about their professional reputations (as well as the reputations of the groups they associate with).

It is important to note that the objective here is not to create vigilante justice and boardroom intrigue. Rather, cultures of honor bring about confidence in distributive justice, with profits going fairly to those most responsible for creating them; procedural justice, ensuring that a system of patronage and favors doesn’t overwhelm effective processes; and interactional justice, which requires certain measures of respect be shown to all members of the organization in their day-to-day dealings.

Going above and beyond
One of the best ways to establish a culture of honor is to hire people with the right values in the first place and then reinforce those qualities regularly, a process that takes a concerted corporate commitment. Novo Nordisk is a case in point. “Every ad, site and selection tool has a strong component of individual value and alignment with our culture,” Jeff Frazier, Novo’s vice president of human resources told Medical Marketing & Media. “Culture and values are a significant component of management training.”

To continually reinforce a culture of honor, many high-performance businesses rely on judicious story-telling—the stuff of corporate lore. At UPS, managers frequently tell anecdotes about employees who have gone above and beyond the call of duty, like the driver who was delivering a package on Christmas Eve to a military base in Aberdeen, Maryland. The address wasn’t properly filled out, but instead of leaving the package at the base to be routed later, the driver made the extra effort to locate the soldier, who was grateful because it contained a surprise gift—airline tickets for a flight later that day that would allow him to be home for Christmas. Such stories regularly make the rounds at UPS, reinforcing the core values of the company.

Typically, cultures of honor require a rigorous initiation for new members. At the multibillion-dollar oilfield services provider Schlumberger, engineers hired out of college must go through years of rigorous training before they become field engineers in North and South America. They first need to complete an intensive three-year program that includes classroom work at training centers as well as on-the-job experience at various sites. After that, they have to complete a project that addresses a real business need, and only those who pass that test are eligible for promotions. According to the company, 40 percent of the newly hired engineers don’t make it through their third year.

Staying true to the code
Perhaps the best way to establish a culture of honor is to lead by example and to have a zero tolerance for violators, no matter how high up the corporate ladder they might be. This is one of the most controversial aspects of a culture of honor, but it’s crucial that people believe the punishment for violating an honor code will be swift and harsh, even for senior executives. Otherwise, they will quickly lose faith in the system.

If after reading about cultures of honor you begin to wonder why your own organization’s commitment to honor seems to have slipped, that’s a good sign. Writes James Bowman in his book Honor: A History: “Honor cultures always tend to be nostalgic about the past . . . since honor’s tendency to venerate the authoritative and traditional naturally creates a built-in dissatisfaction with the present.” In other words, people in honor cultures often worry that their best days are behind them. That’s a good starting point for working to improve the culture in the present.

Shared success
When companies provide a working environment with those three essential qualities—capability, predictability and reliability—they set the stage for serious talent to shine and for the organization as a whole to thrive.

Perhaps the best way to assess whether your business is worthy of serious talent is to ask yourself this: Are your employees so good that they are being recruited heavily by competitors? And when they choose to leave, is it because they are the most talented in the industry and have been persuaded by generous enticements? Most important, have you managed to attract and retain sufficient talent that you can sustain the losses?

At Shockley Semiconductor, the loss of superior talent was enough to doom the company. In contrast, high-performance businesses like PepsiCo, P&G and Danaher Corp. have become veritable breeding grounds for the future executives of other corporations while maintaining their own extraordinary level of success. Former Danaher managers, for instance, are now the CEOs of several other industrial companies, including Belden, IDEX Corp. and Polaris Industries. And erstwhile P&G employees who have gone on to run major corporations include Jeff Immelt (General Electric Co.), Jim McNerney, (3M, Boeing Co.), Meg Whitman (eBay) and Steve Ballmer (Microsoft Corp.).

Here we need to make a crucial distinction: The nature of your business is not nearly as important as the nature of your organization. By that, we mean that any company can become a magnet for serious talent, regardless of the products it sells. Yes, Apple attracts some of the best minds in its industry, but that’s not necessarily because it makes snazzy, buzz-worthy products like the iPhone and iPad. Companies that sell more mundane items, such as laundry detergent and disposable diapers, can also become powerful magnets for serious talent. P&G is one example.

What do Apple, P&G and other high performers have in common? A keen sense of purpose and constant striving to be the best at what they do, as well as an organizational environment with demonstrated capability, predictability and reliability. These characteristics make them worthy, in the eyes of highly skilled and dedicated individuals, of serious talent.

(http://www.accenture.com/us-en/outlook/Pages/outlook-journal-2011-team-count-on.aspx)