Successfully transitioning to new leadership roles PART I
Leadership
changes are more common and important than ever. But most companies don’t get
it right.
In Leading Organizations: Ten Timeless
Truths (Bloomsbury Publishing,
June 2017)McKinsey senior partners Scott Keller and Mary Meaney address the ten
basic issues facing leaders: attracting and retaining talent, developing
current talent, managing performance, creating leadership teams, making
decisions, reorganizing to capture value quickly, reducing long-term overhead
costs, making culture a competitive advantage, leading transformational change,
and transitioning to new leadership roles. “Attracting and retaining the right
talent” (November 2017) was
the first in our series of articles based on the book. The second was “Reorganizing to capture maximum
value quickly” (February 2018).
Every leadership
transition creates uncertainty. Will the new leader uncover and seize
opportunities and assemble the right team? Will the changes be sustainable? Will a worthy successor
be developed? These questions boil down to one: Will the leader be successful?
Why are leadership transitions important?
Hardly anything that
happens at a company is more important than a high-level executive transition.
By the nature of the role, a new senior leader’s action or inaction will
significantly influence the course of the business, for better or for worse.
Yet in spite of these high stakes, leaders are typically underprepared for—and
undersupported during—the transition to new roles.
The consequences are huge
Executive transitions
are typically high-stakes, high-tension events: when asked to rank life’s
challenges in order of difficulty, the top one is “making a transition at
work”—ahead of bereavement, divorce, and health issues. If the transition succeeds, the leader’s company will probably be successful; nine
out of ten teams whose leader had a successful transition go on to meet their
three-year performance goals. Moreover, the attrition risk for such teams is 13
percent lower, their level of discretionary effort is 2 percent higher, and
they generate 5 percent more revenue and profit than average. But when leaders
struggle through a transition, the performance of their direct reports is 15
percent lower than it would be with high-performing leaders. The direct reports
are also 20 percent more likely to be disengaged or to leave the organization.3
Successful or not,
transitions have direct expenses—typically, for advertising, searches,
relocation, sign-on bonuses, referral awards, and the overhead of HR
professionals and other leaders involved in the process. For senior-executive
roles, these outlays have been estimated at 213 percent of the annual
salary.Yet perhaps the most significant cost is losing six, 12, or 18 months
while the competition races ahead.
Nearly half of leadership transitions fail
Studies show that two
years after executive transitions, anywhere between 27 and 46 percent of them
are regarded as failures or disappointments. Leaders rank organizational
politics as the main challenge: 68 percent of transitions founder on issues
related to politics, culture, and people, and 67 percent of leaders wish they
had moved faster to change the culture. These matters aren’t problems only for
leaders who come in from the outside: 79 percent of external and 69 percent of
internal hires report that implementing culture change is difficult. Bear in mind
that these are senior leaders who demonstrated success and showed intelligence,
initiative, and results in their previous roles. It would seem that Marshall
Goldsmith’s advice—“What got you here won’t get you there”—is fully applicable
to executive transitions.
Leadership transitions are more frequent, yet
new leaders get little help
The pace and magnitude
of change are constantly rising in the business world, so it is no surprise
that senior-executive transitions are increasingly common: CEO turnover rates
have shot up from 11.6 percent in 2010 to 16.6 percent in 2015. Since 69
percent of new CEOs reshuffle their management teams within the first two years,
transitions then cascade through the senior ranks. Sixty-seven percent of
leaders report that their organizations now experience “some or many more”
transitions than they did in the previous year.
Despite the increase in
frequency, only 29 and 32 percent of US and global leaders, respectively, feel
that their organizations appropriately support new leaders. As many as 74 percent of US
leaders and 83 percent of global ones think they are unprepared for their new
roles. As CEB puts it, “most organizations approach new leadership transitions
in the same way many organizations approach mergers and acquisitions: as one-off events…. The typical
unsystematic ‘hands-off’ transition approach relies heavily on new leaders to
self-manage their transitions. However, most leaders experience only a handful
of transitions … so for them, each transition remains more art than science.”
Organizations most
often try to help newly appointed leaders by supplying them with mentors or
informal “buddy” networks. Yet only 47 percent of external hires and 29 percent
of internal ones find these helpful. Standard orientation programs are the second
most common approach, but only 19 percent of externally and 11 percent of
internally recruited executives consider them effective. Some methods—for
instance, tailored executive coaching and customized assimilation plans—have
been shown to double the likelihood of success, but only 32 percent of
organizations use them.When companies are asked what
additional support they intend to provide in the future, the commonest response
is to have HR play a more supportive role. But HR departments already have a
full plate.
What are the big ideas?
Newly appointed leaders
should take stock of their situation in five areas and then take action to deal
with them. They should also clearly state not only what they will do but what
they won’t, as well as forget the idea that they have only 100 days to make an
impact.
Take stock and take action in five areas
The great Spanish
writer Cervantes once wrote, “To be prepared is half the battle.” What is the
other half? A second famous Spaniard, the artist Pablo Picasso, said, “Action
is the foundational key to success.” They were right, so every leader should
mount a transition in two equally important stages: first take stock and then
take action by asking questions about five basic dimensions of leadership—the
strategy and operation of the business or function, the corporate culture, the
team, the leader herself or himself, and other stakeholders that need to be
managed. Beware of generic answers
because every leader’s starting point is different. For some, the starting role
is to maintain and improve steadily what they inherited in each of these
dimensions. For others, transformational change in all the dimensions is
necessary. Still others face a mix of requirements.
Simultaneously managing
the five focus areas isn’t easy. As with spinning plates, do it too slowly, and
they lose momentum and crash to the ground; do it too quickly, and they spin
out of control. Get this right, and you can succeed spectacularly.
Be clear about what you won’t do, not just
what you will
When Alan Lafley took
over Procter & Gamble, in June 2000, the global consumer-goods giant had
become the worst-performing company in the Dow Jones Industrial Average. Lafley
increased P&G’s profits by 70 percent and its revenues by almost 30 percent
in his first five years. His success was as much about what he stopped as what
he started. Lafley and his senior team quickly ended almost $200 million of
experimental technology projects and regional marketing campaigns. They
prioritized four core businesses and ten countries.
As Lafley says, “be
clear on what you won’t do—what needs to stop…. Most human beings and most
companies don’t like to make choices, and they particularly don’t like to make
a few choices they really have to live with.” Along the same lines, management
thinker Jim Collins notes that great companies create “stop-doing” lists to
complement their “to-do” lists.13In our experience, too, senior
executives in new roles must be clear not only about what they want to do but
also about what they don’t. Otherwise, when employees hear about the company’s
new direction, they will reframe what they are already doing to show that this
supports the changes, and many pet projects will crop up in the name of
advancing them. Well-intentioned but fragmented and ineffectual efforts then
proliferate, and momentum vanishes. Successful leaders are 1.8 times more
likely than others to communicate explicit ideas about what to stop, not just about what to
start.
So, as leaders in a
transition take stock, they should ask what they can delay or terminate—for
example, initiatives, meetings, process steps, reports, and rituals. As leaders
take action, they should not only be clear about what will stop and start but
also adopt a philosophy from the world of good housekeeping: one thing in, one
thing out. When people propose new initiatives, leaders should ask what the
company will stop doing to free up the time, money, resources, and focus needed
to implement them well.
Be impact-driven, not calendar-driven
If you type “executive
transitions” into Amazon, you will find a long list of books offering 90- and
100-day plans for success. These works say that you have a limited period to
achieve full productivity as a leader and that if you don’t make it in time,
you are doomed. The evidence doesn’t support these claims: 92 percent of external and 72
percent of internal hires take far more than 90 days to reach full
productivity. Sixty-two percent of external and 25 percent of internal hires
admit that it took them at least six months to have real impact.
In general, that delay
isn’t a problem. Stakeholders typically expect a new CEO to propose a strategic
vision within the first eight months, not the first 100 days (Exhibit 3). They
give the CEO 14 months to get a new team in place and 19 months for an increase
in share prices.15This doesn’t necessarily mean that
leaders shouldn’t move quickly—for example, 72 percent of them wish they had
taken less time to reshape their teams. But stale formulas shouldn’t pressure
leaders to act.
CONNTINUES IN PART II
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