In their book, Built to Last, James Collins and Jerry Porras emphasize the point that the most successful companies promote their CEOs from within. They have succession and development plans that are geared toward growing talent internally, so that the company’s core values are preserved via continuity of leadership with their internally-grown successors.
Homegrown candidates understand company culture, which can be very critical in a successful transition. A deep understanding of the company’s history and the key values that have impacted decision-making over long periods of time give internal succession candidates a leg up over their external counterparts.
Internal candidates also know the company’s personnel and have worked with them for many years, which can facilitate acceptance and support of their leadership. Similarly, the company’s employees are intimately familiar with the new leader and, likely, his or her particular style of leadership and management. Everyone has a pretty good idea about each other’s strengths and weaknesses so there is no need for a “get acquainted period.” Generally, this allows for a very seamless transition of leadership.
External candidates, on the other hand, likely have little understanding of company culture. Culture shock may occur either for the new leader or for the current employees as the new leader brings corporate culture changes. There is a greater likelihood of clashing styles which can be distracting and, perhaps, even debilitating for the business, thereby stalling business progress. Thus, there is generally a greater start-up time (or stalled progress) when an externally-hired new leader takes over.
A study conducted by Matthew Bidwell of the University of Pennsylvania’s Wharton School of Business found that CEOs hired from the outside were 61 percent more likely to ultimately be fired than internal successors. They were 21 percent more likely to leave the company on their own. This study appears to confirm what seems logical and intuitive: internal succession candidates are generally poised to have a far greater probability of success than external candidates.
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