Who remembers John R Walter, the man who left AT&T after nine months with a severance package of $26m? Or Gilbert Amelio, who left Apple after 500 days with a multi-million dollar payoff? In the UK we have had our own ‘high-profile’ executive failures, of course, but the newspaper headlines disguise the real statistics of executive failure and the total damage to companies’ bottom-line results.
Research shows that a high percentage of all executives in a new job fail. According to the Centre of Creative Leadership, up to 35% of executives leave, are dismissed or receive a poor performance review within 18 months. Other research puts the failure rate at around 40% and every executive failure brings with it substantial costs.
The costs to the business go way beyond the failed executive’s salary. People already accept that an employee failure can account for 2.5 times the salary in direct costs. But research done by management psychologist Brad Smart estimates that the lost opportunity costs can be as much as 24 times the base remuneration package.
The question is how many executive failures could your organisation suffer before the bottom line was being seriously affected? What projects would have to be put on hold? And what essential equipment would have to wait until next year or what sales initiatives cancelled?
Remember, too, that the risks of failure can be reduced. Companies, managers and new executives can be trained, coached and mentored to understand the transition processes, and therefore significantly increase the chances of executive success.
The first task is to ensure that the company understands the business situation that it requires the new executive to manage. Such an understanding will naturally involve senior management but should include HR, line management and the newly-appointed executive. This avoids any misunderstandings of the required results.
There are four transition situations: the start-up, turnaround, restructure or continuation. The ‘start-up’ is both easy to understand and recognise. The task is to collect a team of suitably qualified people around you, establish plans of action, rules, work processes and so on. The problem with start-ups is that they can take a long time to establish and have working properly. There is, however, the advantage that the situation is a blank sheet of paper and plans and processes can be introduced easily.
‘Turnaround’ is where processes and systems or people have become increasingly inefficient. Very often this is accompanied with poor morale, teams that feel lethargic and who find their work is tedious. An advantage is that almost everyone involved will recognise that change is required and is likely to respond enthusiastically to even the smallest success.
‘Restructure’ is where there is a clear need to introduce change so that the business can become more efficient. There tends to be a very strong and ingrained culture and this reduces performance. The people involved are often basking in past glories and tend not to recognise the need for change.
Finally there is ‘continuation.’ In this situation there is already an efficient business process and the team is motivated and works well together. But very often there is the shadow of a previously-liked leader. This can make the team hard to manage because they will cling onto the revered leader’s methods. The advantage with this type of transition is that the team works well together. The problem can be knowing where to move to next.
Ensuring that all parties understand the business situation will substantially increase the chances for success. It is equally important for a new executive to understand the culture of the new organisation and communicate effectively with their new boss.
A series of conversations with the new boss is essential. The first task is to identify the business position as the boss understands it. What the boss expects to happen in the short, medium and long-term. What would constitute success in his eyes and how and when will such success be measured.
The next set of questions would form part of a separate meeting. This seeks to establish the preferred management style of the boss. It’s useful to establish how the boss likes to be communicated with. That includes how the boss prefers to take decisions and what types of decisions must be referred upwards and what decisions the executive can make independently.
A further meeting should establish the resources available, both in terms of people and money as well as support from the boss. Support, for instance, could take the form of public endorsement of plans and proposals.
Getting to grips with the softer aspects of the business must not be underestimated. Any new executive must understand what aspects of culture must be preserved and what needs to change: what behaviours the organisation expects from them; what change programmes have and have not worked in the past; and what the organisation views as a success and, just as importantly, failure.
New executives know that they only have a short time to prove themselves and will often seek to introduce ‘quick wins’ to prove their abilities. But doing this carelessly has been the downfall of many.
The most common mistake is to airlift processes and systems that have worked for the executive in the past and introduce them into the new job. Very often this is done without taking into account the culture of the organisation or the people that will have to work with the changes.
Another potential error is to introduce early wins that are isolated from the long-term plan. All quick wins must complement future plans, indicate to people how things will change and contribute to the overall result. Otherwise what’s the point?
Other people will use early wins to assess a new jobholder’s capabilities, credibility and whether the new executive can be trusted. I recently heard of a new personnel director who within a few days of arrival had begun to lose the trust of her team by encouraging individuals to discuss with her the failings of their colleagues.
During an early team meeting she asked her people to consider some quick wins that would ‘make her look good’. Her team informed her that she could save thousands of pounds by removing the free canteen lunch for part-time staff. An email confirming this was sent to all part-time staff.
The following day the CEO arrived home to find that his wife, who worked part-time in accounts, had not cooked him dinner. ‘You don’t give me lunch so I’m not cooking you dinner,’ she was reported to have said. The free lunch was restored, the new executive was embarrassed and her team had its eyes on the exit door. She left eight months later.
Failing to introduce a quick win that energises a new team, doing something that is seen as manipulative and introducing a quick win that the boss feels is not appropriate or does not contribute to the long-term results are just as damaging. The best quick-wins are those that remove bottlenecks or reduce costs.
One action that improves the chances of success is creating coalitions. Developing a relationship between the boss and the team is essential. But 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.
There are obvious key players within the organisation – typically those people who control budgets and supply goods or services. But to succeed, a new executive also needs to identify the opinion makers in the business – the people with expert knowledge or influence. Providing a new executive with plenty of chances to meet with these people will reduce the risk of future problems.
Executive failure is expensive and can affect the financial well-being of a company. But careful planning and a corporate transition policy for new executives can significantly reduce the risk below the 40% average.
Stephen Harvard Davis is a business relationship specialist and author of ‘Why do 40% of Executives Fail?’
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