Secretary of DefenseCorporate Fellows ProgramFINAL REPORTMCKINSEY & COMPANY, LLPLTC Keith A. Armstrong, USAMay 2000TABLE OF CONTENTSExecutive Summary .3McKinsey & Company 4Quotable Quotes .6The Paradox 7The Private Sector at War .9The Military the Uniformed War for Talent .14Personal Perspectives . 21Findings/Recommendations 24Conclusion .26Figures . 29Bibliography 49EXECUTIVE SUMMARYThis report is an overview of the fellowship conducted at McKinsey & Company in Houston, Texas, from August 1999 to June 2000 as part of the Secretary of Defense Corporate Fellowship Program (SDCFP). The purpose and scope of the SDCFP is outlined in Department of Defense Directive 1322.23. This was the fifth year of the program.While assigned to McKinsey & Company, I worked primarily as an associate performing consulting work as a member of a client support team based out of the Houston Office. I did have occasion to observe the workings of the firm at a higher level and interviewed all of the Texas office partners during the course of the year, but the majority of the work was at the consulting entry level.I chose to concentrate my focus for this years project on a subject that is of great concern to the Defense Department as well as private industry the War for Talent - the attraction, recruitment and retention of top talent. In times of national economic and defense success, organizations are faced with a significant human resources crisis. Unemployment rates are as low as they have been in decades. Interest rates are down. Inflation is under control. Markets have been soaring. So what is the crisis? This paper will attempt to answer that question.The War for Talent exists in many different forms with no cookie-cutter solutions to help solve the problem. One thing is for sure money or compensation is not the overarching solution to the problem. Companies must establish value propositions attractive enough to draw top talent from new talent pools and/or existing talent pools. The challenge for the Defense Department is to identify the key levers to use in order to establish a viable proposition while at the same time solving public relations issues that have become impediments to recruiting and retention of key personnel. Included in the paper is an analysis of the War for Talent from the private sector and Defense Department perspectives with some proposed actions to help resolve the problem. McKinsey was a gracious host and provided a work environment that was only bounded by my own initiative. Despite the busy schedules of the partnership and support staff, they went out of their way to make me feel at home and to accommodate my research. I must admit I was most impressed by the expertise of the consulting staff; they are truly some of the most talented young people I have ever had the opportunity to work with. I thank McKinsey & Company for sending me to firm training at the Mini-MBA and Basic Consulting Readiness, without which I would have been totally lost. This has been a rewarding year new problems and new problem solving techniques, new experiences and new memories, new friends and new adventures. McKINSEY & COMPANYMcKinsey & Company describes itself in McKinsey & Company, Inside and Out An Introduction to the Firm, as a management-consulting firm. Founded in the United States in 1926, it was not the first consultant on management, but its approach was very different from the management “engineers” and “time in motion” experts of the day. McKinseys strategy was built around two planks: 1) Service - serving senior management on problems important to them and their enterprises, and 2) Professionalism - putting the interests of clients first and maintaining the knowledge and skills necessary to serve these clients.James McKinsey and Marvin Bower, the founding fathers of the firm, describe the “big idea” for the firm, “to provide advice on managing top executives and do it with the professional standards of a leading law firm.” McKinsey always looked at where the firm was and what its outlook was before moving forward on any project. The firm started with a forward looking management staff and 75 years later the founding fathers would be proud to know that the ideology has not changed.In the late 1930s, a third strategic plank was added: 3) People - to make it a “career” firm for young people rather than an “end-of-career” firm for experts and semi-retired executives. The addition of this plank allowed the firm to move to the top of the consulting business. People and the intangible capital they bring have become McKin