In 2012, the Corporate Executive Board1 reported that 25% of Fortune 500 managers change jobs within their companies every year and these leaders spend, on average, about four years in a given position. The Board also suggested that there will be, “greater numbers of executive roles to be filled due to the accelerating pace of business.”
So here is a startling statistic from a 2013 McKinsey Report2:
“40% of new executive transitions are declared failures after 18 months and the trend has remained steady for at least 15 years.”
The damage resulting from a failed transition can be costly. For example the same Corporate Executive Board report suggested that the Direct Reports of a leader struggling through a transition perform 15% worse than those who report to a high-performing leader and those Direct Reports are also 20% more likely to be disengaged or leave the organization.
On the other side, the same report suggests that successful transitions help leaders ramp up to full productivity nine months faster and that they are much better prepared to balance near-term performance objectives against long-term aspirations for the future. In addition, these leaders create significant value for their organizations, including a 13% lower than average attrition risk, discretionary effort levels that are 2% higher than average for the teams they lead, and an increase in revenue from 3 to 5% as well as an increase in profit from 2 to 5%.
So why do so many transitions fail when the cost of failure is so high and the benefits of success so clear?
Many organizations create 90-day or 100-day plans for newly appointed executives. Unfortunately, the vast majority of new leaders take far more than 90 days to get up to full productivity – with most transitions taking well over six months. Unfortunately, these plans are built around arbitrary timelines rather than business impact and developmental need. They also tend to be overly focused on the administrative elements of the transition rather than engaging the transitioning leader’s key stakeholders in a robust dialogue about the future and current challenges.
Organizations that recognize leadership transitions as regularly occurring events, which must be managed as carefully as other recurring, high-impact processes will reap outsized benefits over their more traditional brethren.
So what can organizations do to facilitate successful leadership transitions?
Here are five factors and activities, which can help leaders at all levels of the organization successfully transition into new leadership roles:
All Transitions are Not Created Equal
First, it’s critical for organizations to acknowledge that all leadership transitions are NOT created equal and that generic transition support focused on a narrow window at the start of the executive’s tenure is a recipe for failure.
Understand the Context of the Transition
Second, an objective diagnostic of the “situation” into which the leader is transitioning is critical to success. For example, is the leader inheriting a successful business, replacing a well-respected leader, replacing a poor performer, driving a significant change in direction, or building something new? To fully assess the contextual reality into which the leader is transitioning requires an organizational diagnostic that covers four key areas:
- Markets & Customers – The activities that generate top-line revenue growth and generally include the business unit’s overarching strategy, i.e. which markets, which customers or segments, which products, what price – against which competitors.
- Operational Excellence – The resource utilization, cost, and control elements, i.e. manufacturing, resource management, financial control, organizational / structural efficiency, logistics, inventory management, supplier management, shared services, etc.
- Brand & Marketing – The externally-oriented activities that encourage customers to buy, to interact with the company, and remain loyal to the brand – and allows the company to differentiate itself from its competitors, i.e. the emotional positioning or what company stands for in the market place.
- People & Culture – The internally-oriented activities that define the organization and the people who work in it. This includes values, vision, competencies, and leadership effectiveness
Identify the Leader’s Specific Developmental Challenges
Third, clearly understand and articulate the developmental challenges that the leader’s successful transition must address across four dimensions:
- Knowledge Challenges: How well equipped the transitioning leader is to meet the strategic, operational, and people challenges necessary to succeed in the new role.
- Scope Challenges: How well equipped is the transitioning leader at managing across a broader set of activities, e.g. transitioning from a functional leader (CFO) to a general manager (CEO).
- Scale Challenges: How well equipped is the transitioning leader to deal with a significant increase in the size and footprint of the new organization, e.g. a 40% increase in FTEs or moving from a domestic role to a multi-national role.
- Geography Challenges: How prepared is the transitioning leader to understand (both intellectually and emotionally) the Business and Social cultures of the new country and the readiness for change from the executive’s and his or her family’s perspective.
Standard Process with a Portfolio of Options
Fourth, all transitions should be managed through a robust “Transition Infrastructure” to ensure that each unique transitioning executive has access to all of the resources and tools available to them to ensure a high-quality and value-adding experience for the transitioning executive, his or her team, and the overall organization.
This infrastructure includes a standardized process and a tool set to navigate executive leadership transitions. It also employs a “Portfolio of Options” approach to successfully facilitate each unique transition.
The transition process should begin as early as legally possible, be feedback driven, owned by the hiring manager and facilitated by a robust “Transition Infrastructure.”
The tool set should include a set of diagnostic interviews to assess the business context into which the leader is transitioning as well as the specific developmental challenges the leader must address to be successful in the new role.
The Portfolio of Options should be designed to address a wide range of developmental objectives and include opportunities to meet with leading academics and senior business consultants, access to executive coaching, stakeholder management and engagement plans as well as feedback collection from key stakeholders.
Finally, the costs of each executive transition should be calculated as part of the hiring costs for the position and the hiring manager should be held accountable for the success of the transitioning leader. This encourages the hiring manager or executive to diligently monitor the status and success of the transition as well as make the necessary resources available to ensure success.
Continuously Assess Impact
The final piece of the transition puzzle is “Impact Assessment.” Measuring the impact and success of the transition should be a combination of:
- The obtainment of the performance objectives negotiated by the transitioning executive and the hiring manager at the beginning of the process
- The collection of feedback from the executive’s key stakeholder regarding the performance of the business unit and the effectiveness of the new executive in his or her new role.
These two factors need to be systematically and regularly captured across the entire timeframe of the transition. Organisations that wait until the end of the transition to measure these factors risk diluting the value of the managed transition process. By not capturing the small issues, which may have an oversized impact on the executive’s success, they deny the executive the opportunity to modify his or her transition plan accordingly, which in turn can have a negative impact on the success of the transition.
Organizations that actively address these five factors will significantly reduce the costs of failed leadership transitions as well as drive increased organizational productivity and profitability.
The keys to success are to:
- Start as early as legally possible to assimilate, connect, and engage the new leader to his or her new role and stakeholders
- Sustain the process for 12 months
- Actively diagnose the transition challenges and share performance feedback
- Assign ownership of the Transition to the Hiring Manager and factor the transition costs into the hiring decision
- Make available the required assessment and development resources and tools from a portfolio of options
- Actively manage the process through a dedicated “Leadership Transition Infrastructure”
- Constantly measure impact
As Marshal Goldsmith says:
“What got you here won’t get you there.”
This is true of executives who are disinclined to let go of many of the things that made them successful in the past and learn the new skills that will make them successful in this new role. It also applies to the HRD and Talent Management functions that continue to pursue traditional approaches to leadership transitions.
Actively managed executive leadership transitions are one of the most effective initiatives organizations can implement as part of their talent management and executive development portfolios. An “Active Approach” yields outsized returns, facilitates stakeholder engagement, and provides each individual leader with exactly the development and support they need to be successful in their new roles – when and how they want it.
1High-Impact Leadership Transitions – The Corporate Executive Board – 2012
2Leadership Transitions – McKinsey.com