The Importance of Succession Planning

Question: Why are "inside outsiders" the key to succession \r\nplanning?

Joe Bower: In academia, in the beginning of\r\n the late ‘80’s and then into the ‘90’s, there was this idea being sold,\r\n particularly by organization economists that basically you could break \r\nup big firms and create more value because the corporate offices of \r\nthese things was only overhead.  And that seemed wrong because actually \r\nif you were – if you believed in markets, you looked around the world \r\nand you saw an awful lot of big multi-business firms and they were \r\nprospering.  So, I thought I would spend some time exploring what I \r\ncalled corporate value added.  And I did that and all of a sudden it \r\noccurred to me that one of the things that was most closely associated \r\nwith the creation of real value and sustained over long periods of time \r\nwas management of succession.  And as soon as you say it, it’s pretty \r\nobvious that if you can continue to have good leadership, that’s going \r\nto be very important to a company, or to a nation for that matter.  When\r\n we study history, we see the same thing.

So, I did begin to \r\nexplore and I studied CEO succession and that led to the book, because \r\nthat’s the way academics communicate once they’ve got a body of \r\nknowledge.

Question: What's in it for a current CEO to \r\nthink about his or her successor?

Joe Bower: Well, one\r\n of the critical findings was that the way you manage succession is \r\nbasically the way you manage the company and companies that have \r\nproblems with succession usually also begin to have problems with their \r\nbusiness.  The two tend to go together.  Companies that are able to \r\nmanage succession well have been investing in the development of leaders\r\n of their people at the same time that they’re developing businesses.  \r\nIn any significant period of time, like several years—5, 10, it’s very, \r\nvery hard to have a successful business without having great people \r\nrunning it.  This is a tough world that we live in today, lots of \r\ncompetition.  So, that emerged very clearly as one finding, and then \r\nthere are lots of elements, which we can talk about if you want as to \r\nwhat it means to manage a company.

Question: How can \r\nboards evaluate candidates to succeed a CEO?

Joe Bower:\r\n Management succession begins with who you’re recruiting, how you bring \r\nthem on board in the company, the career paths that are available for \r\nthem, the training they get, the mentoring they get, the way in which \r\nthey are developed.  So, a critical question that comes up all the time \r\nis: "We have a critical job that’s opening up that needs to be dealt \r\nwith.  Who do we put in?"  In the world you just described, the simplest\r\n thing is to find the person who can probably do the best job and put \r\nhim or her in at that point.  But that’s not what you really want to \r\ndo.  You really also want to say, who has a good crack at doing that \r\njob, but would really grow because they had done it?  And that’s the \r\nstory that is often used on this point is that of the career of Jeff \r\nImmelt.  He was brought in to turn around the home appliance business \r\nduring a period of a big recall, and it was a nightmare, but he often \r\nsays in discussing this that he’d never be the CEO of GE had he not had \r\nthat really tough particular experience.

Question: What\r\n is an "inside outsider?"

Joe Bower: An inside \r\noutsider is someone who is growing up within the organization in just \r\nthe way I’ve been describing.  He was recruited well, was developed and \r\nis identified as having potential and given more responsibility, but \r\nsomehow has managed to also maintain a sense of where the world is going\r\n and what is going to have to change in the company if it’s going to be \r\nsuccessful in the next period. Typically insiders are great, but by the \r\ntime they get up to the very top, they’ve drunk the Kool-Aid and they \r\nreally believe in their organization to the extent that they don’t see \r\nthe need for radical change.  They know certain things have to change to\r\n do this, do that, and they tend to see things in terms of what you \r\ncould do step-by-step.  But the world is changing very, very, very fast \r\nand that’s not enough.  And it’s often critical to see that real change \r\nis needed.

That’s what you look for.  I mean, typically we know,\r\n we see them in any organization they’ve been with.  They tend to be \r\nsmart, they tend to be difficult, they don’t necessarily play well with \r\nothers.  So, they need some work.  But that’s what it’s all about.  When\r\n you find those people and you can give them the management skills they \r\nneed to budget well, to create teams, to lead teams, those are the \r\nthings you can really help people with.  It’s very hard to give them \r\nthat breadth of perspective, that maverick's willingness to see \r\nsomething and go after it even though no one else necessarily sees it.  \r\nAnd in organizations, you look for people like that and you try to \r\ndevelop them.

Question: What if the new CEO comes from\r\n the outside?

Joe Bower: Obviously a lot do and some \r\nsucceed.  Generally, if you’re going outside, it means that the \r\norganization has failed.  It has failed. Either its performance is so \r\nbad that it’s clear that within the organization there isn’t someone who\r\n can see what needs to change.  Or they simply haven’t developed, it may\r\n be successful but for reasons as you have described there is a strong \r\nleader that has never developed others, there’s no one to take over who \r\nhas the real strength.  A lot of school systems need change and they \r\ncan’t get it from within because people from within don’t have the skill\r\n set.  One of the problems in universities is when you promote from \r\nwithin; very often you’re just promoting a good department chairman, or \r\nworse, just a good professor. Very few schools have a management \r\ndevelopment program.  We at Harvard Business School work very hard to \r\nmake sure that those faculty who have the talent get a chance to \r\nadminister over a decade so that when the time comes to pick a Dean, \r\nthere are usually four or five people who have been running things and \r\nwe can get a sense of whether they would be a good dean.

Recorded April 1, 2010

Why an "inside outsider" might be the next person most suited to take over a company.

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