External V. Internal Candidates

. In general, organizations are looking for people who have strategic clarity, can communicate, ensure staff commitment and focus on the delivery. At the same time they have the capacity to, and are willing to, challenge current assumptions, processes and structures and are innovative and flexible, ie change their styles of management accordingly. One avenue for identifying suitable candidates is external recruitment.

. It is claimed by Anthony Mayo and Nitin Nohria (2005) that the impact of a CEO can vary an organisation's performance by around 14%

. In the USA, outsiders are chosen into CEO successions up to 1/3 of the time. The traditionally-held view that "outsiders"have a higher risk of failure is more than balanced by the chance of perceived benefits by way of a fresh point of view, lack of attachment to the status quo and a wider experience.

"...The perfect CEO has the knowledge of an insider and the perspective of an outsider..."

Phil Condit, Boeing's Chief Executive and Chairman as quoted by John Davidson, 2001

Furthermore,

"...What's clear is that the old system of succession ‐ the life-time devotion to one company, the apprenticeship to the incumbent, the long expected tap on the shoulder, has almost disappeared..."

Andrew Cornell, 2003

. Research conducted by Boris Groysberg et al (2006) found that bringing an outsider in as CEO works best if the CEO comes from the same industry and/or brings a management team (and system) with him/her from his/her previous organisation. The hardest requirement of any new senior manager is to understand the tacit knowledge about the unique routines and procedures, corporate culture and informal norms, and to have experience with the specific management systems and processes used in his/her new organisation.

CEO ( outsider versus traditional)

  Outsider CEO Traditional CEO
Experience first time CEOs with little prior managerial experience experienced managers with many years of managerial experience
Primary activity capital allocation operational management and external communications
Objective optimise long-term value per share growth
Key metrics margins, returns, cash flow, etc revenues, reported net income
Personal qualities analytical, frugal, independent charismatic, extroverted
Orientation long-term short-term

. External recruitment can be important as it brings in new talent, dynamism, perspectives and increases diversity in thinking and approach so that the organization is better able to handle the market changes at both the strategic and operational levels, such as in the global marketplace and increased consumer demands. Customers expect more than just excellent products and services; they want solutions and partners. In organizations that need transforming, internal recruitment into management can be self-defeating if the organization is suffering from malaise and needs a change of direction. Outsiders who bring in experience from competitors and customers can increase the organisation's understanding of the drivers behind the customers' demands

. Remember: any outsider appointed to an organisation has the problem of understanding what the organisational culture is and what the culture is doing for the organisation. In addition to these outsiders having the necessary competencies and motivation, they need to be aligned with the organisation's culture and values. If these outsiders do not share the organisation's values and do not reinforce the value system through the reward system, their management style and the messages they communicate, they can have a disastrous impact on the performance of the organization.

. An insider has a better understanding of parts of the culture that provide identity, its distinctive competence, protection from anxiety, etc. An outsider would find it hard to understand the subtleties, other cultural issues, the emotional relationships, etc that have developed in the organisation

. External recruits take much longer to align, understand the political plays, the rules of success and the organizational norms, while internal recruits have a better understanding of the "unspoken hurdles"in the organization. Furthermore, internal recruitment boosts organizational morale, encourages career path development and builds internal leadership capabilities.

. Bringing in an outsider usually means that that he/she is a cost

"...Typically it takes around 6 months for managers in new roles to add value to a company..."

Michael Watkins as quoted by James Hall, 2004e

In large organisations with many layers of management, this cost can be into the millions of dollars. Furthermore,

"...2 out of 5 managers fail in their roles in the first 18 months. That can mean $780,000 per manager for failed transitions..."

Centre for Creative Leadership as quoted by James Hall, 2004e

. Whether employing an outsider or insider depends upon whether organisational changes are needed. If continuation of the current organisational culture is the priority, the insider will be preferred as this person

- knows the organisation

- understands the culture

- understands the organisation's business.

. If changes are needed, the choice is not so clear. Generally, an insider will have more credibility to introduce the change as he/she is more acceptable to the organisation, ie he/she is regarded as "one of them". If an outsider is employed, he/she will need to have active support from key opinion-makers in the organisation for the change to be effective and/or bring into the organisation his/her own "loyal"staff from outside the organisation to occupy key positions in the organisation. If he/she does not have active support of the key staff, the effectiveness of the change will be negatively impacted, if not "doomed to fail"

. Remember: right people (whether external or internal) must have the correct attitude, ie they are eager to learn, possess a strong personality and have a pro-active attitude. These characteristics are more important than expertise, skills and experience, as generally they can acquire these things. Thus it is more important to look for the right "fit"on culture, values, behaviours and attitude

. In addition to employing people who have the right fit in attitude, etc, a good rule of thumb is to look for people who have around 60 ‐ 70% of the expertise required to handle the position; the remaining 40 ‐ 30% allows for growth in expertise, etc to handle the position. This means that the individual will be challenged and is thus less likely to become bored and want to change jobs. Furthermore, it is very expensive to have to replace staff. Some people estimate that it costs around $300,000.00 to nurture a graduate into a senior position

. There is increasing USA evidence that it is generally better for an organisation to develop its own "star talent' than to recruit from outside. It has been found that company-specific competencies drive star talent

"...it isn't just that people make organisations better - the organisation also makes people perform better..."

Boris Gruysberg et al, 2004

The executives' performance depends on both their competencies and abilities, and on the organisation's systems, processes, procedures, leadership style, etc. The "star"needs to unlearn old practices and learn new ones (including the subcultures, personalities, relationships, etc within the organisation). USA research has found that in around 50% of those organisations which hire a star from outside, several things happen, ie

- star's luster fades

- their performance falls sharply

- their performance never achieves previous high levels

- other staff members' performance suffers as they can resent the appointment of the "star"

 

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