Firm Strategy and Internal Talent Markets

Abstract

How should executives strategically allocate talent? Organizations have recently adopted talent marketplaces to address job assignment and internal mobility. We formalize the worker-to-division matching problem, in which executives match workers and divisions, and face agents' preferences as the primary constraint. Our main result is market-based assignments can benefit organizations, but only in particular settings. Internal markets fail to deliver a classic benefit of strategic management: coordination across business units. Nonetheless, markets do perform well on another managerial dimension: creating incentives for employee engagement and truthful reporting. The performance of internal talent markets thus depends on which factor is more important for the firm's strategic position. We show that this can depend on each firm’s production technology, workplace incentives, workforce preferences, turnover costs, and other business parameters.