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Succession Planning Perspectives

Published November 2007

Internal Versus External Succession May Be Best Long-Term Talent Bet

 

  Kellye Whitney

Succession planning can be a tricky business, and matters don't always improve with the knowledge that any misstep can cost an organization big money in lost productivity or headhunting fees.

In order to reduce succession risk, some industry thought leaders say the safe bet is to groom internal successors rather than venture outside an organization to find needed talent. But this requires planning time and manpower resources to identify critical positions and create the development opportunities high potentials need.

Research conducted by global HR consulting firm Hay Group confirms it's more important to promote from within, particularly for senior-level executive roles. According to the numbers, external hires for a senior position, such as CEO, simply don't last as long, and even when they stay, external hires often run into trouble more frequently than internal ones.

"Outside CEOs tend to get the boot quicker," said Ron Garonzik, vice president of Hay Group. "They're at a disadvantage, because it's harder for them to read the people, culture and nuances of working within the organization. Three-quarters of Fortune's most admired companies hire from internal pools as a matter of preference or policy."

Further, Garonzik said boards don't always do their homework at the CEO or senior level. Nor do they see succession as a process. They see it as replacement planning rather than a complex exercise in forward thinking to obtain a clear picture of anticipated changes in the business. Boards may not even ask the right questions such as: What's the company's strategic story going forward? What are the operating requirements over a three- to five-year time horizon? How is the organization changing? How will the top executive roles need to change to fit new business demands?

On a personal level, does the organization need the successor to be a visionary? Should the person have deep operational credibility and experience? Does the person need to be a turnaround pro and savvy managing investors and Wall Street?

Without that upfront information, the aforementioned scenarios could have different leadership demands.

"Organizations look at the star executives at certain companies, but stardom is a state specific to a situation" Garonzik said.

Acclimation is not a huge reason external succession candidates fail, he explained. Many successors simply don't know the expectations of their new roles, thus the demands when they step into the position often aren't met.

Internal candidates have an edge, because an organization has the opportunity to proactively assess what development and experience candidates are missing, provide these and subsequently mitigate risks well in advance of a proposed transition or succession. This assessment means asking questions to find out exactly what's needed to groom people for those top 30 or so business critical positions.

"You'd be surprised how many organizations, when I ask that question, they're not automatically clear on the positions that will drive their operating model," Garonzik said. "They've got to get that story right."

He said organizations can't just assume star high potentials will figure it out. Further, every great general manager or business leader in a line position won't flourish in, say, a critical matrix role. Sometimes this sink-or-swim talent approach works, but often it doesn't, because the organization doesn't make sure the person has the skill sets needed to work in that matrix environment.

"I've seen unfortunate losses of talent because people lost their confidence in a position they just couldn't figure out," Garonzik said. "Organizations have to get savvy on critical position demands. Not all leadership positions are the same. You need to ask, 'high potential for what' as opposed to, 'this is a general pool of really great talent.' Once you're clear on the positions, then you can ask, 'What do we need from a leadership standpoint? How can we better prepare people for those different positions?'"