6 April 2006 Stephen Harvard Davis
A huge amount of time and effort is expended on attracting senior executives to a company. Yet despite a stringent interview process, research shows that around 40% of new senior executives fail within eighteen months. Stephen Harvard Davis's new book tackles just this subject.
Because of the high failure rate of newly appointed senior executives, additional and more expensive management time and resources must be allocated to successfully divest the firm of the failing executive and recruit a replacement. The direct costs can account for two and a half times the salary of the departing executive.
However, the lost opportunity costs can be far higher. Consider a newly appointed sales director running a team of 25 sales people. When the sales director begins to fail, the sales team will tend to stop selling as they watch the bloodletting that so obviously begins to take place. The result can be lost orders and lost clients amounting to many times the sales director's salary.
In the most serious case of executive failure this can affect the long-term legacy that the chief executive is looking to stamp on the business. In less serious cases the questions that need asking include: How many executive failures can the business suffer before the bottom line will be seriously affected? What projects will have to be put on hold? What expansion will be jeopardised and can I afford to spend my valuable time sorting out the situation?
TRACK RECORD MISLEADING
Our research shows that despite psychometric tests, interviews and assessment centres, all too often the candidate that is selected 'doesn't reflect the actual business situation' that needs managing.
Instead companies will recruit executives based upon a track record of significant and fast-paced achievement, believing that the skills of one business situation are easily transferred to another.
This recruitment strategy favours executives with experience of start-ups or turnaround, where immediate, strong and decisive actions are required and results are easily proved. It discriminates against those with strong experience of restructure or maintenance, where longer time scales are available and negotiation skills are required, but where results are less easily proved or attached to the leader.
FIRST THINGS FIRST
Once in the new job, a new executive needs to understand the situations that revolve around the culture and management style of the business:
- What aspects of culture must be preserved and what needs to change?
- What behaviours does the organisation expect from the new executive?
- What change programmes have worked/failed in the past?
- What does the organisation view as a success? (Is team success seen as more important than individual?)
New executives know that they have a short time to prove themselves and will often seek to introduce 'quick wins'. Introducing quick wins carelessly has been the downfall of many executives. This desire to prove that one is 'hitting the ground running' comes despite the fact that it's almost impossible to have a direct effect on the bottom line within three months of starting a new job.
The most common quick win is to airlift processes and systems that have worked in the past and introduce them into the new job. Often this is done without taking account of the culture of the organisation or the people that have to work the new process or system. This generally produces quick wins that are isolated from the long-term results required. All quick wins must compliment future plans; otherwise what's the point?
One action that improves the chances of success is creating coalitions. There is a need to develop relationships with the boss and the team. However, too many executives spend too much time on these activities while ignoring colleagues that will be needed to provide help or cooperation at a later date.
The new executive's company usually helps identify the key players within the organisation: those people that control budgets and those that supply goods or services. However, to succeed, a new executive also needs to identify the various alliances that exist, the opinion makers, the people with expert knowledge or influence.
All too often, identifying such people is left to the skills of the new appointee, rather than being part of the induction process. It is also a fact that the higher up the organisation one climbs, the greater the need to understand and possess political skills, negotiation ability and influencing skills.
This is very difficult to teach in a classroom. So companies with people that have been identified as potential future leaders would do well to consider mentoring such skills at an early stage.
EASE THE TRANSITION
Finally, chief executives can inadvertently contribute to executive failure by appointing a change catalyst and then withdrawing in order to give the new appointee as much freedom of action as possible, only becoming involved again when things are clearly going wrong. Such actions only reinforce to the whole company exactly when the CEO can be expected to show concern. An alternative action would be for the CEO to identify the support that can be given and be seen to be visibly providing it.
Executive failure is expensive in terms of management time and can seriously affect the financial well-being of a company. However, the risks of failure can be significantly reduced below the average 40% with careful planning and a corporate transition policy for all new executives.