May 22, 2019 | 01:58 PM

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12.02.2014Can Talent Be Acquired By The Dozen?

Talent is the primary source of sustainable competitive advantage

Panos Mourdoukoutas, Forbes.com

Talent is the primary source of sustainable competitive advantage — especially in the high tech industries, which compete on innovation. That’s why talent recruitment and retention is the most important aspect in their business strategy.

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But there are two ways of recruiting talent: the slow way and the quick way.

The slow way is to recruit talent one employee at a time, by going through the traditional process of screening and evaluation. In this way, prospective employers can determine not only the technical skills of different candidates, but also their philosophical preparation for working with others to advance the cause of the organization.

The quick way is to recruit talent by the dozen, by buying out or merging with other companies.

Does it work?

It depends on the cultural mind-set of the two companies. When both the acquirer and the acquired companies share a liberal culture that treasures innovation, the merger works (Google GOOG +1.47%’s merger with Nest comes to mind). But when the acquirer treasures a conservative culture and the acquired a liberal culture, the merger may not work (the merger of Bank of America BAC +0.96% with Merrill Lynch comes to mind).

Compounding the problem this strategy may be costly, as acquirers end up paying a larger and larger premium for the companies they acquire. This results in the enriching of the shareholders of third parties, rather than their own.

Worse, it may be “behind the curve”–lead to the acquisition of the wrong talent, if the acquirer ends up buying the industry loser (e.g., Hewlett-Packard HPQ +1.91%’s acquisition of Palm).

That’s why every second decade large companies end up selling off the smaller companies they purchased in a previous decade.

As legendary investment manager Peter Lynch put it,  “Every second decade the corporations seem to alternate between rampant diworseification (when billions are spent on exciting acquisitions) and rampant restructuring (when those no-longer-exciting acquisitions are sold off for less than the original price).

The same thing happens to people who buy sailboats.”

“These frequent episodes of acquiring and then regretting, only to divest and acquire and regret once again, could be applauded as a form of transfer payment from the shareholders of the large and cash-rich corporation to the shareholders of the smaller equity being taken over, since the large corporations so often overpay.”

Cisco Systems CSCO -0.55% is a large technology company that comes to my mind.

Simply put, what comes by the dozen may end up going by the dozen. That’s certainly not the right way to treat top talent.That’s why I would be very skeptical of high technology mergers, as a way of acquiring talent.

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