SecretaryofDefenseCorporateFellowsProgramFINALREPORTMCKINSEY&COMPANY,LLPLTCKeithA.Armstrong,USAMay2000TABLEOFCONTENTSExecutiveSummary……….………………………………………………3McKinsey&Company……………………………………………………4QuotableQuotes…………………………………………………………..6TheParadox………………………………………………………………7ThePrivateSector–atWar……………………………………………….9TheMilitary–theUniformedWarforTalent.……………………………14PersonalPerspectives…………………………………………………….21Findings/Recommendations………………………………………………24Conclusion.………………………………………………………………..26Figures…………………………………………………………………….29Bibliography………………………………………………………………49EXECUTIVESUMMARYThisreportisanoverviewofthefellowshipconductedatMcKinsey&CompanyinHouston,Texas,fromAugust1999toJune2000aspartoftheSecretaryofDefenseCorporateFellowshipProgram(SDCFP).ThepurposeandscopeoftheSDCFPisoutlinedinDepartmentofDefenseDirective1322.23.Thiswasthefifthyearoftheprogram.WhileassignedtoMcKinsey&Company,IworkedprimarilyasanassociateperformingconsultingworkasamemberofaclientsupportteambasedoutoftheHoustonOffice.IdidhaveoccasiontoobservetheworkingsofthefirmatahigherlevelandinterviewedalloftheTexasofficepartnersduringthecourseoftheyear,butthemajorityoftheworkwasattheconsultingentrylevel.Ichosetoconcentratemyfocusforthisyear’sprojectonasubjectthatisofgreatconcerntotheDefenseDepartmentaswellasprivateindustry–theWarforTalent-theattraction,recruitmentandretentionoftoptalent.Intimesofnationaleconomicanddefensesuccess,organizationsarefacedwithasignificanthumanresourcescrisis.Unemploymentratesareaslowastheyhavebeenindecades.Interestratesaredown.Inflationisundercontrol.Marketshavebeensoaring.Sowhatisthecrisis?Thispaperwillattempttoanswerthatquestion.TheWarforTalentexistsinmanydifferentformswithnocookie-cuttersolutionstohelpsolvetheproblem.Onethingisforsure–moneyorcompensationisnottheoverarchingsolutiontotheproblem.Companiesmustestablishvaluepropositionsattractiveenoughtodrawtoptalentfromnewtalentpoolsand/orexistingtalentpools.ThechallengefortheDefenseDepartmentistoidentifythekeyleverstouseinordertoestablishaviablepropositionwhileatthesametimesolvingpublicrelationsissuesthathavebecomeimpedimentstorecruitingandretentionofkeypersonnel.IncludedinthepaperisananalysisoftheWarforTalentfromtheprivatesectorandDefenseDepartmentperspectiveswithsomeproposedactionstohelpresolvetheproblem.McKinseywasagracioushostandprovidedaworkenvironmentthatwasonlyboundedbymyowninitiative.Despitethebusyschedulesofthepartnershipandsupportstaff,theywentoutoftheirwaytomakemefeelathomeandtoaccommodatemyresearch.ImustadmitIwasmostimpressedbytheexpertiseoftheconsultingstaff;theyaretrulysomeofthemosttalentedyoungpeopleIhaveeverhadtheopportunitytoworkwith.IthankMcKinsey&CompanyforsendingmetofirmtrainingattheMini-MBAandBasicConsultingReadiness,withoutwhichIwouldhavebeentotallylost.Thishasbeenarewardingyear–newproblemsandnewproblemsolvingtechniques,newexperiencesandnewmemories,newfriendsandnewadventures.McKINSEY&COMPANYMcKinsey&CompanydescribesitselfinMcKinsey&Company,InsideandOut–AnIntroductiontotheFirm,asamanagement-consultingfirm.FoundedintheUnitedStatesin1926,itwasnotthefirstconsultantonmanagement,butitsapproachwasverydifferentfromthemanagement“engineers”and“timeinmotion”expertsoftheday.McKinsey’sstrategywasbuiltaroundtwoplanks:1)Service-servingseniormanagementonproblemsimportanttothemandtheirenterprises,and2)Professionalism-puttingtheinterestsofclientsfirstandmaintainingtheknowledgeandskillsnecessarytoservetheseclients.JamesMcKinseyandMarvinBower,thefoundingfathersofthefirm,describethe“bigidea”forthefirm,“toprovideadviceonmanagingtopexecutivesanddoitwiththeprofessionalstandardsofaleadinglawfirm.”McKinseyalwayslookedatwherethefirmwasandwhatitsoutlookwasbeforemovingforwardonanyproject.Thefirmstartedwithaforwardlookingmanagementstaffand75yearslaterthefoundingfatherswouldbeproudtoknowthattheideologyhasnotchanged.Inthelate1930s,athirdstrategicplankwasadded:3)People-tomakeita“career”firmforyoungpeopleratherthanan“end-of-career”firmforexpertsandsemi-retiredexecutives.Theadditionofthisplankallowedthefirmtomovetothetopoftheconsultingbusiness.PeopleandtheintangiblecapitaltheybringhavebecomeMcKinsey’sgreatestassetsasevidencedbythisstatementfromBusinessWeek,September20,1993;“WhatsetsMcKinseyapart,evensomerivalsconcede,isthatthefirmcontinuallyassemblestheverybestpeople.”McKinsey&Companyestablishedofficesaroundtheworldanddealtwithissuesinallviableeconomicmarkets.ThenatureoftheproblemsMcKinseyhelpsaclientaddresschangedovertheyearsandreflectedbothdifferencesintherelationshipsbetweenlargecompaniesandtheirgovernmentsandthesophisticationofmanagement.McKinseyconsultantsdesignedtheinitialorganizationoftheNationalAeronauticsandSpaceAdministration,advisedtheVaticanonitsbankingsystem,developedtheUniversalProductCode,specifiedthesystemssupportingFrankfurt’sstockexchangeandhelpedtheTreuhandanstaltprivatizeEastGermancompanies.Giventhebreadthanddepthofthiswork,thereisanintellectualtraditionatMcKinseythatisverydifferentfromwhatonefindsinauniversityorinaconsultingfirmthatconcentratesonasingleproblemorindustry.Itisa