Solve the Succession Crisis: Grow Inside-Outsiders

Workforce Management, September 8, 2008 | Go to article overview

Solve the Succession Crisis: Grow Inside-Outsiders


SAP

When the time comes for a company to bring in a new CEO, should the candidates be knowledgeable insiders or reformist outsiders? According to a recent study, most companies hire outsiders with plans for sweeping change. Insiders, however, often have a better track record as CEOs than outsiders. Insiders know the firm and its people, but they're often blind to the need for radical change. Outsiders see the need for change, but don't know the company or the sector well enough to foster it. So, which is better?

The Harvard Business Review's article on "inside-outside leaders" takes a look at what is working in top-level leadership. Presently, companies delivering superior, sustained performance have hybrids, or "inside-outsiders," at the helm. These CEOs have ascended within the organizations while remaining detached enough from their company's cultural norms to maintain an outsider's objectivity, allowing them to recognize where change is needed. They're internal candidates who have an outside perspective.

The CEO Search

The HBR article discusses how the job of a CEO is inherently difficult-and becoming more so due to market conditions. CEO turnover is on the rise globally, and studies suggest that the proportion of that turnover related to inadequate performance is steadily climbing upward.

When a company's performance disappoints, its board of directors tends to seek a white knight from the outside to come in and change everything. Most often, the fastest way to get results is to cut costs, but after a few years of squeezing the bottom line, the CEO often leaves or sells the company. The seeds of growth are eliminated along with the overhead.

When a board looks inside for future leaders, it all too often sees men and women who don't seem to have the stature and vision to lead. This is likely to be true in any company where no systematic effort has been made to build future leaders.

Sixty percent of respondents to a poll of 1,380 HR directors of large U.S. companies said their firms have no CEO succession plans in place. A critical difference between companies that manage succession well and those that don't is the understanding that succession is not an event, but rather a process.

Growing Inside-Outsiders:

Growing inside-outsiders takes patience. The article outlines how firms may, over a decade or more, form highpotential executives through challenging them with increasingly difficult assignments and rigorous mentoring.

Recruit right: Hire from a diverse pool of highly talented individuals who have general manager potential. Over time, they'll become good insiders, learning to manage in the context of the company's strategy, systems, and culture.

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