Dancing with the Stars: How Talent Shapes Firm Performance

Abstract

In spite of the attention that attracting and retaining talent receives, little is known about effective talent management. What is the impact of talent on firm performance, among which employee types should firms build talent and do complementarities between employee talent and firm resources affect which talent management approach firms should follow? Our paper contributes with two insights using a rich panel of Danish matched employer-employee data. We identify a tradeoff between short term adjustment costs and longer term gains from increasing talent where initial gains appear of offset later benefits. We identify important complementarities between manager and worker talent, and between these and the firm’s capital resources and organizational design. These complementarities suggest that firms can create and appropriate rents from talent when their talent acquisition strategy is well aligned with policy and organizational choices.

Keywords: Strategic human capital, firm performance, organization design, panel data

JEL Classification: C23, M10, M12, M50, M51, J6, J24, D24