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How Continuity of Talent Affects Innovation

In the annual CMI business continuity studies, loss of data remains a key concern for companies large and small.

· Agile Zone

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In the annual CMI business continuity studies, loss of data remains a key concern for companies large and small. Even in 2015,  a lot of companies are still not backing up their machines, even when it can be a very simple process.  

Whilst things like loss of IT and bad weather are regular features in the study, I’d like to focus today on loss of talent and the impact it can have on the innovative performance of an organization.

When it comes to hiring new chief executives, the trend is very much to hire within.  A recent study found that nearly 80 percent of CEOs recruited over a sixty year period were done so from within the organization.

The study went on to reveal, however, that these internally recruited candidates tend to behave very differently to their externally chosen peers.

“If a company currently is either mired in mediocrity or performing poorly and it announces the hiring of an external CEO, it could be a signal that the board is serious about fixing problems,” the authors say. “Although we cannot foretell the outcome of hiring an external CEO, or any new CEO, it could give investors reason to think about investing a little more confidently in that company within the context of their portfolios. The hiring of an internal candidate, on the other hand, may indicate that a company is stable and likely to continue an already successful business approach.”

The researchers explored the succession patterns of over 2,500 CEO turnovers from S&P 500 companies from 1951-2010.  The analysis included an exploration of the decisions made by each of the new CEOs.

The results revealed that externally recruited CEOs generally invested more money in R&D, with the implication being that they were generally more in favor of a new and innovative approach for their new employer.

“If a firm is doing well, the internal process frequently will be sufficient to identify, nurture and promote the people who ultimately will be able to lead the company and continue to generate value,” the researchers say. “If not, companies start looking externally, and though it may create uncertainty, it takes a certain amount of honesty and humility to say that you don’t have anyone internally you feel can run the company. The move to select an external CEO often speaks to the strength of character and foresight of these firms — and of American capitalism in general, given that one out of every five new CEO positions goes to an external candidate.”

Of course, the authors are at pains to point out that they don’t regard external hires as necessarily being better than internal ones, with both proving valid options in certain circumstances.

Internal hires are far and away the most common choice, regardless of external circumstances.  They generally occur however when the organization can plan for the event.  When their hand is forced, the tendency is to look externally instead.

This kind of forced change usually then precedes a change in approach and direction for the business, with the external candidate tasked with rejuvenating the firm.

It’s a similar finding to a previousstudy, published in 2013, which also found that outsiders are typically recruited with a mandate for change.  Alas, it also found that this mandate doesn’t often last for very long, with many not surviving the transformation period they were hired to invoke.

Nevertheless, their study does suggest that outsiders can outperform internal candidates when they enter a poorly performing company, which suggests that they do make some progress at least.

A note of caution however comes with the finding that this performance hike is usually a result of cost cutting rather than growth, which the authors contend could be down to limited industry knowledge.

All of which underlines the importance of succession planning, even for unforeseen circumstances, as external hires are under pressure both to ensure a degree of continuity whilst also planning for change.

It’s a challenge that many understandably struggle with.  It’s important therefore to try and help integrate outside CEOs as quickly as possible so that they can build the kind of networks required to support any change efforts they make.

There also needs to be an understanding that these kind of changes take time, and therefore the emphasis on short-term results (the first 100 days), is often far from helpful.

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Topics:
innovation ,business continuity ,human resources

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