The legendary management thinker Peter Drucker once observed that “the purpose of an organization is to enable ordinary human beings to do extraordinary things.” His insight cuts to the heart of corporate talent strategy: should companies invest in developing their existing workforce, or pursue a more aggressive approach of replacing lower performers with top talent?
Tech bros in founder mode are clear: cut the low performers and “find me someone who’s competent!”
As AI advances and skills requirements evolve rapidly, CEOs and HR leaders face mounting pressure to boost productivity, and grabbing higher performing talent seems like a straightforward fix.
But not so fast.
Our ability to identify and choose talent is deeply flawed. In leadership for example, recruiters too easily conflate confidence and competence (organizational psychologist Tomas Chamorro-Premuzic’s book on the topic is called “Why Do So Many Incompetent Men Become Leaders?”). Or witness the babble effect, which shows that the more you talk within a group setting, the more likely you are to get selected as the team leader.
Simply adding more talent doesn’t equate to performance either. Boris Groysberg’s study of superstar Wall St financial analysts showed that performance depends on a supportive ecosystem. Moving from one firm to another guaranteed a performance drop that took years to build back from.
Two Paths to Firm Performance
The first path – what we might call the “buy strategy” – draws on the famous Pareto Principle, which suggests that roughly 20% of employees generate 80% of value. Management scholar Jim Collins captured this thinking in his famous advice to “get the right people on the bus and the wrong people off the bus.” Meta recently followed this plan by eliminating the bottom performing 5% of employees worldwide. The idea is seductive in its simplicity: identify your lowest performers, replace them with stars, and watch productivity soar. After all, cutting salary drops the saving straight to the bottom line.
There is also a well-worn second path – the “developmental approach” – builds on research showing that organizations succeed by becoming learning systems. Exceptional performance is by definition rare (as I pointed out in my last article). Firms who accept this fact focus instead of creating capabilities that build skills and abilities rather than pursuing human unicorns, aiming to shift the performance curve of the broader workforce through targeted development.
Let’s examine these competing approaches in a thought experiment using rough data from 3M, a company whose innovation culture offers fertile ground for comparing the impact of workforce development strategies.
With 95,000 employees generating $32.2 billion in revenue, 3M’s revenue per employee of $338,947 places it solidly among high-performing manufacturers, though well behind tech giants like Apple ($2.4 million per employee) or Microsoft ($1.1 million per employee).
Fire-and-Hire Strategy: A Costly Bet
Imagine 3M decides to buy rather than build. It follows Meta in firing the bottom 5% performers (4,750 employees) but recruits high-calibre talent from the market. It ignores research showing firstly thatexternal hires typically take three years to perform as well as internal promotions, yet command18% higher salaries, and secondly evidence that investing in training and other high commitment management practices produce measurable bottom line benefits. Stanford management professor Jeffrey Pfeffer laments “methods for achieving a culture of high-performance are known, but apparently [rarely] implemented.”
Fire-and-hire sounds simple, but there are real costs , including severance for those fired, recruitment costs for the new hires, training and onboarding costs, and then lost productivity as the hires come up to speed. The bottom line hit for the mechanics of hiring and firing:
$775.35M.
In order to earn that back, and then add to the bottom line, the new hires must exceed the average performers by a lot. If the new people produce double the profits of an average performer, the company loses around $200m in year 1.
If the hires perform at 3x the average performer, the company gains only around $94m.
Only if they manage an unlikely 4x average performance would 3M make a noticeable profit boost.
Raise the Average
Meanwhile, in another universe, 3M decides to boost profits by investing in the development of the middle 2/3 of the workforce (about 63,650 employees).
This is clearly not cost free. Assuming an industry average spend of $1,308 per person, the training investment comes out at around $83.25M. To match the positive Fire & Hire scenario ($94.M), each middle-tier employee need to increase their productivity by:
2.4%.
You read that right. Just a few percentage points, averaged across the workforce exceeds the fire and hire strategy. That’s the good news. The great news? The evidence suggests that training lifts staff performance far higher than that.
Final Verdict: The Clear Business Case for Upskilling and Development
Given 3M’s financials, focusing on training and lifting the performance of the middle performing employees is the more effective strategy. Lifting performance a few percentage points yields a net profit increase of nearly $100m, compared to the highly variable returns in the Fire & Hire approach. While hiring top talent is an essential part of long-term success, businesses should always invest in the potential of their existing workforce before considering mass replacements.
The Wiser Path
When Google climbed out of the garage it faced a classic talent dilemma. Should they aggressively hire stars from established tech companies, or develop their own talent pipeline? They chose both – but with a twist. While selectively recruiting key players, they also invested heavily in building the best staff development in the world.
The choice between building and buying talent is ultimately a false dichotomy. The real question is how to create an organization where talent naturally flourishes. In today’s knowledge economy, that means investing in your people not as resources to be optimized, but as potential to be unleashed.
This way of thinking points to three key principles for modern organizations:
Create Learning Engines, Not Training Programs
Rather than viewing development as discrete events, successful organizations build continuous learning into their DNA. When consulting firm Bain & Company faced disruption from digital competitors, they didn’t just hire data scientists – they created the “Bain Analytics Academy” to upskill their entire consultant base. Within three years, their digital revenues tripled.
Build Communities, Not Just Capabilities
The best development approaches don’t just build skills – they forge connections. When Microsoft shifted to its growth mindset culture under Satya Nadella, they didn’t just offer training – they created learning communities where employees could experiment, fail, and grow together.
Measure What Matters
Finally, successful organizations track the right metrics. Instead of just measuring training hours or certification completions, they assess actual behavior change and business impact.