Who will lead your organization when your current C-Suite moves on? Most organizations can’t answer that question, and that’s a problem. Why? The job market is the tightest it’s ever been, for one. For the first time in U.S. history, there are more jobs than job seekers. The struggle to attract outside talent is real, and it’s only going to get more brutal.
Plus, hiring outside talent can be expensive. Hitting the right notes when it comes to skills and cultural fit is a huge gamble with external hires, especially for the C-Suite. And when that gamble doesn’t pay off, it can cost an organization dearly. One University of Pennsylvania Wharton School of Management study shows external hires are paid substantially more while performing measurably worse in the first two years than their internally promoted peers. They’re also more likely to leave during that timeframe, which puts the organization back at square one.
For these reasons, internal hires are a critical part of executive succession planning, and the practice is increasing in popularity. From 2012 to 2015, 74 percent of the new CEOs appointed to S&P 500 companies were promoted from within, a more than 10-percent increase from the previous four years.
The organizations that succeed in succession planning have at least one thing in common: Their leaders are constantly looking for their own replacements.
Identify Potential Leaders
Gone are the days in which managers succeeded by hiring a team of “yes men” who are content right where they are, under the manager’s thumb. Building a strong succession plan based on a culture of internal promotions requires holistic planning on multiple levels.
There are several ways to do this. One is Topgrading, Inc.’s methodology developed by Dr. Brad Smart, which categorizes hires into A Players, B Players, and so on. A Players are identified by clarifying a vision, setting standards, and identifying employees who are or can be your star talent (if given the right support to achieve their full potential). When you have a methodology like this in place, it becomes exponentially easier to identify top internal candidates for promotion among your existing team and to compare those candidates with potential external hires.
Fill in the Gaps
Following a system like Top-grading will also help you identify gaps in which external hires are necessary. After all, if a few people at the top move up, at some point in the middle, someone will need to be hired from outside the organization. Internal hires aren’t an entirely self-sustaining resource, and succession planning should take place at all levels, not just at the top. Even closely held organizations like family businesses can benefit from strategically bringing in leadership from the outside when necessary.
You may need an outside recruiter to identify and attract the right candidates at this point because most will be passive (they won’t be actively pursuing a new job). Candidate assessments and even thoughtful and thorough on-boarding can help ensure you find the right fit and that the new hire sticks around for those critical first two years. Build the right balance of succession planning that includes internal and external hires and your organization will be thriving for decades to come.