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Recruiting Outsiders for Top Management
Seeking
An Easy Solution: As failure rates among new general managers have risen
companies have been recruiting outsiders in the hope that after two or
three years as general managers in other companies they would have
learned how to manage a business enterprise successfully.
Robert H. Hayes and William J. Abernathy called attention to
this trend nearly a decade ago in their classic article, “Managing
Our Way to Economic Decline.” After
reporting that “companies are increasingly choosing to fill new top
management posts from outside their own ranks,”
they added: “In
the opinion of foreign observers, who are still accustomed to
long-term careers in the same company or division, ‘High-level
American executives seem to come and go and switch around as if
playing a game of musical chairs at an Alice in Wonderland tea
party’.”
As
failure rates among general managers have risen, the supply of
qualified chief executive officer candidates has declined.
As a consequence, more and more boards of directors have been
recruiting outsiders for these positions.
Professor Richard F. Vancil of the Harvard Business School
reported in his book, “Passing the Baton,” that:
The
single most striking trend in corporate succession during the past 25
years is the increasing willingness of corporations to appoint an
outsider as CEO. …In
the late 1960’s only 8% of new CEO’s were outsiders; by the early
1980’s, the figure was up to 25%.”
While
most companies still promote from within, the trend is clear.
American companies are increasingly finding that the experience
of their top management candidates is not preparing them for the jobs
they are expected to fill. Even
though recruiting outsiders undermines the loyalty of insiders, the
trend undoubtedly will accelerate as more companies discover that
their own top management candidates do not have the competence needed
to manage their business enterprises.
The
Wrong Solution: There is considerable reason to believe, however, that
recruiting outsiders is the wrong solution to the management
development problems of most
American companies. While
experience in other companies may teach outsiders how to make the
transition from functional to general management, it does not teach
them what they need to know about their new companies—about their
people, their cultures, their structures, their policies and
procedures, their products or their customers.
All these things take time to learn.
And if the outsiders are industry outsiders, they must also
learn about the industry, its competitors and its technology which
takes even more time, typically at least two, to two and a half years.
As
professor John J. Gabarro of the Harvard Business School concluded
after studying the problems outsiders have in taking over key
management jobs, “the all-purpose manager who can parachute into any
situation and succeed is a myth.”
His research, which included four failures among the fourteen
management succession cases studied, indicated that outsiders,
particularly industry outsiders, were likely to have considerably more
difficulty taking over key management positions than insiders.
As he reported:
“Managers
who are industry outsiders are on particulary slippery ground.
All other factors being equal, an insider with
industry-specific or other pertinent experience is more likely to take
charge with fewer difficulties than an outsider without
industry-specific experience. Three
of the four managers who failed were industry outsiders…”
Professor
Gabarro’s research makes it clear that recruiting outsiders is not
an automatic solution to a company’s management problems.
Not only are outsiders likely to have more difficulty taking
over key management positions than insiders, but their failure rates
may be even higher than those of insiders.
There is little reason to believe, therefore, that our
companies can solve their management development problems by hiring
top managers from each other.
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Introduction
Recruiting
Outsiders
for Top
Management
Why
General
Managers
Fail
Lessons
for
CEOs and
Boards of
Directors
A
Breakthrough
In
Management
Development
Significance
Of The
Accelerated
Experience
Method™
Conclusion
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